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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|(Mark One)                                       |                                                                                         
|------------------------------------------------ | ----------------------------------------------------------------------------------------
|ý                                                | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended December 31, 2003
|OR                                              
|o                                                | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
 to              

Commission File Number 000-50709

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Marconi Corporation PLC(Exact name of Registrant as specified in its charter)

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|ENGLAND AND WALES(Jurisdiction of incorporation or organization)New Century Park
P.O. Box 53
Coventry
Warwickshire CV3 1HJ
United Kingdom(Address of principal executive offices)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports, and (2) has been subject to filing requirements for the past
90 days). Yes ý    No o

Indicate
by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

As
of February 12, 2004, 200,010,759 shares of the Registrant's common stock was outstanding.

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|         |  |                                                                                       |  |                                                                                                                
|-------- |  | ------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------
|Part I.  |  | Financial Information                                                                
|Item 1.  |  | Financial Statements                                                                 
|         |  | a)                                                                                    |  | Condensed Consolidated Balance Sheets at December 31, 2003 and March 31, 2003                                  
|         |  | b)                                                                                    |  | Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2003 and 2002 
|         |  | c)                                                                                    |  | Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2003 and 2002           
|         |  | d)                                                                                    |  | Condensed Consolidated Statements of Shareholder's Equity/(Deficit) for the nine months ended December 31, 2003
|         |  | e)                                                                                    |  | Notes to Condensed Consolidated Financial Statements                                                           
|Item 2.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|Item 3.  |  | Quantitative and Qualitative Disclosure About Market Risk                            
|Item 4.  |  | Controls and Procedures                                                              
|Part II. |  | Other Information                                                                    
|Item 1.  |  | Legal Proceedings                                                                    
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                     
|         |  | Signatures                                                                           
|         |  | Certifications                                                                       

2

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Part I. Financial Information

Item 1.    Financial Statements

Marconi Corporation plc and subsidiaries        CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                     |                                                                                                                                                                          | December 31,
2003 |       | March 31,
2003 |       
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------- | ----- | -------------- | ------
|
|
|ASSETS                                               |                                                                                                                                                                          |                   |       |                |       
|Current assets                                       |                                                                                                                                                                          |                   |       |                |       
|                                                     | Cash and cash equivalents                                                                                                                                                |                   | 478   |                | 192   
|                                                     | Restricted cash                                                                                                                                                          |                   | 209   |                | 964   
|                                                     | Investment in securities                                                                                                                                                 |                   | 2     |                | 16    
|                                                     | Accounts receivable, net                                                                                                                                                 |                   | 308   |                | 457   
|                                                     | Inventories, net                                                                                                                                                         |                   | 188   |                | 227   
|                                                     | Prepaid expenses and other current assets                                                                                                                                |                   | 122   |                | 125   
|                                                     | Assets of discontinued operations                                                                                                                                        |                   | 88    |                | 102   
|                                                     |                                                                                                                                                                          |                   |       |                |       
|Total current assets                                 |                                                                                                                                                                          | 1,395             |       | 2,083          |       
|Property, plant and equipment, net                   |                                                                                                                                                                          | 183               |       | 251            |       
|Investments in affiliates                            |                                                                                                                                                                          | 7                 |       | 18             |       
|Goodwill, net                                        |                                                                                                                                                                          | 579               |       | 584            |       
|Intangibles, net                                     |                                                                                                                                                                          | 67                |       | 101            |       
|Other non-current assets                             |                                                                                                                                                                          | 10                |       | 75             |       
|                                                     |                                                                                                                                                                          |                   |       |                |       
|TOTAL ASSETS                                         |                                                                                                                                                                          | 2,241             |       | 3,112          |       
|                                                     |                                                                                                                                                                          |                   |       |                |       
|LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)       |                                                                                                                                                                          |                   |       |                |       
|Current liabilities                                  |                                                                                                                                                                          |                   |       |                |       
|                                                     | Short-term debt                                                                                                                                                          |                   | 17    |                | 2,195 
|                                                     | Current maturities of long-term debt                                                                                                                                     |                   | 29    |                | 2,191 
|                                                     | Accounts payable                                                                                                                                                         |                   | 142   |                | 158   
|                                                     | Amounts due to Marconi plc and fellow subsidiaries                                                                                                                       |                   |      |                | 403   
|                                                     | Accrued expenses and other current liabilities                                                                                                                           |                   | 686   |                | 1,087 
|                                                     | Liabilities of discontinued operations                                                                                                                                   |                   | 19    |                | 32    
|                                                     |                                                                                                                                                                          |                   |       |                |       
|Total current liabilities                            |                                                                                                                                                                          | 893               |       | 6,066          |       
|Long-term debt                                       |                                                                                                                                                                          | 504               |       | 30             |       
|Deferred income taxes                                |                                                                                                                                                                          | 5                 |       | 5              |       
|Other liabilities                                    |                                                                                                                                                                          | 340               |       | 342            |       
|                                                     |                                                                                                                                                                          |                   |       |                |       
|Total liabilities                                    |                                                                                                                                                                          | 1,742             |       | 6,443          |       
|Commitments and contingencies (Note 11)              |                                                                                                                                                                          |                   |       |                |       
|Minority interests                                   |                                                                                                                                                                          | 2                 |       | 3              |       
|Shareholders' equity/(deficit):                      |                                                                                                                                                                          |                   |       |                |       
|                                                     | Ordinary shares, £0.25 par value;                                                                                                                                        |                   |       |                |       
|                                                     | Authorized: 627 shares at December 31, 2003 and 1,200 shares at March 31, 2003; issued and outstanding: 200 shares at December 31, 2003 and 573 shares at March 31, 2003 |                   | 50    |                | 143   
|                                                     | Warrants, issued and outstanding: 50 at December 31, 2003                                                                                                                |                   | 12    |                |      
|                                                     | Additional paid-in capital                                                                                                                                               |                   | 1,071 |                | 895   
|                                                     | Accumulated deficit                                                                                                                                                      |                   | (668  | )              | (4,055
|                                                     | Capital reduction reserve                                                                                                                                                |                   | 334   |                |      
|                                                     | Accumulated other comprehensive loss                                                                                                                                     |                   | (302  | )              | (317  
|                                                     |                                                                                                                                                                          |                   |       |                |       
|Total shareholders' equity/(deficit)                 |                                                                                                                                                                          | 497               |       | (3,334         | )     
|                                                     |                                                                                                                                                                          |                   |       |                |       
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) |                                                                                                                                                                          | 2,241             |       | 3,112          |       
|                                                     |                                                                                                                                                                          |                   |       |                |       

See notes to condensed consolidated financial statements.

3

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Marconi Corporation plc and subsidiaries        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (Unaudited)

|                                                                 |                                                              | Three months ended
December 31, |       | Nine months ended
December 31, |      
|---------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------- | ----- | ------------------------------ | -----
|
|
|Revenue:                                                         |                                                              |                                 |       |                                |      
|                                                                 | Equipment revenues                                           |                                 | 233   |                                | 238  
|                                                                 | Services revenues                                            |                                 | 141   |                                | 195  
|                                                                 | Other revenues                                               |                                 |      |                                |     
|                                                                 |                                                              |                                 |       |                                |      
|                                                                 |                                                              | 374                             |       | 433                            |      
|Direct costs                                                     |                                                              | 270                             |       | 330                            |      
|                                                                 |                                                              |                                 |       |                                |      
|                                                                 | Gross margin                                                 |                                 | 104   |                                | 103  
|Operating expenses:                                              |                                                              |                                 |       |                                |      
|                                                                 | Selling, general and administrative                          |                                 | 84    |                                | 86   
|                                                                 | Research and development                                     |                                 | 45    |                                | 61   
|                                                                 | Amortization of intangibles                                  |                                 | 10    |                                | 11   
|                                                                 | Business restructuring charges                               |                                 | 32    |                                | 42   
|                                                                 | Loss/(gain) on sale of long-lived assets                     |                                 |      |                                | 9    
|                                                                 | Impairment of long-lived assets                              |                                 |      |                                | 7    
|                                                                 | Other expense/(income)                                       |                                 | 4     |                                | (4   
|                                                                 |                                                              |                                 |       |                                |      
|Total operating expenses                                         |                                                              | 175                             |       | 212                            |      
|Operating loss                                                   |                                                              | (71                             | )     | (109                           | )    
|Other (income)/expense:                                          |                                                              |                                 |       |                                |      
|                                                                 | Gain on settlement of equity forward contract                |                                 |      |                                |     
|                                                                 | Gain on extinguishment of liabilities                        |                                 |      |                                |     
|                                                                 | Provision for related party receivable                       |                                 |      |                                | (18  
|                                                                 | Gain/(loss) on sale of investments                           |                                 |      |                                | 2    
|                                                                 | Impairment of investments                                    |                                 | (3    | )                              | (1   
|                                                                 | Interest income                                              |                                 | 4     |                                | 8    
|                                                                 | Interest expense                                             |                                 | (46   | )                              | (35  
|                                                                 |                                                              |                                 |       |                                |      
|                                                                 | (Loss)/income from continuing operations before income taxes |                                 | (116  | )                              | (153 
|                                                                 | Income tax benefit                                           |                                 |      |                                | 3    
|                                                                 | (Loss)/gain on sale of affiliates, net                       |                                 |      |                                | (2   
|                                                                 | Equity in net loss of affiliates                             |                                 |      |                                |     
|                                                                 | Minority Interest                                            |                                 | (1    | )                              |     
|                                                                 |                                                              |                                 |       |                                |      
|                                                                 | (Loss)/income from continuing operations                     |                                 | (117  | )                              | (152 
|Discontinued operations:                                         |                                                              |                                 |       |                                |      
|                                                                 | (Loss)/gain on sale of discontinued operations, net          |                                 |      |                                | (4   
|                                                                 | Loss from discontinued operations                            |                                 |      |                                | (11  
|                                                                 |                                                              |                                 |       |                                |      
|Net (loss)/income                                                |                                                              | (117                            | )     | (167                           | )    
|                                                                 |                                                              |                                 |       |                                |      
|Earnings per sharebasic                                         |                                                              |                                 |       |                                |      
|                                                                 | (Loss)/income from continuing operations                     |                                 | (0.59 | )                              | (0.26
|                                                                 | (Loss)/gain on sale of discontinued operations, net          |                                 |      |                                | (0.01
|                                                                 | Loss from discontinued operations                            |                                 |      |                                | (0.02
|                                                                 |                                                              |                                 |       |                                |      
|Net (loss)/income                                                |                                                              | (0.59                           | )     | (0.29                          | )    
|                                                                 |                                                              |                                 |       |                                |      
|Earnings per sharediluted                                       |                                                              |                                 |       |                                |      
|                                                                 | (Loss)/income from continuing operations                     |                                 | (0.59 | )                              | (0.26
|                                                                 | (Loss)/gain on sale of discontinued operations, net          |                                 |      |                                | (0.01
|                                                                 | Loss from discontinued operations                            |                                 |      |                                | (0.02
|                                                                 |                                                              |                                 |       |                                |      
|Net (loss)/income                                                |                                                              | (0.59                           | )     | (0.29                          | )    
|                                                                 |                                                              |                                 |       |                                |      
|Average shares used in computing basic (loss)/income per share   |                                                              | 200                             |       | 573                            |      
|                                                                 |                                                              |                                 |       |                                |      
|Average shares used in computing diluted (loss)/income per share |                                                              | 203                             |       | 573                            |      
|                                                                 |                                                              |                                 |       |                                |      

See notes to condensed consolidated financial statements.

4

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Marconi Corporation plc and subsidiaries        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (Unaudited)

|                                                                                                              |                                                                                                      | Nine months ended                      |       
|------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | -------------------------------------- | ------
|
|
|Cash flows from operating activities:                                                                         |                                                                                                      |                                        |       
|Net income/(loss)                                                                                             |                                                                                                      | 2,695                                  |       
|Adjustments to reconcile net income/(loss) to net cash used in operating activities of continuing operations: |                                                                                                      |                                        |       
|                                                                                                              | Loss from discontinued operations, net                                                               |                                        | 4     
|                                                                                                              | Gain on sale of discontinued operations                                                              |                                        | (21   
|                                                                                                              | Gain on settlement of equity forward contracts                                                       |                                        | (123  
|                                                                                                              | Stock compensation                                                                                   |                                        | 27    
|                                                                                                              | Gain on sale of long-lived assets                                                                    |                                        |      
|                                                                                                              | Impairment of investments in securities                                                              |                                        |      
|                                                                                                              | (Gain)/loss on sale of investments                                                                   |                                        | (14   
|                                                                                                              | Gain on sale of affiliate                                                                            |                                        | (94   
|                                                                                                              | Impairment of long-lived assets                                                                      |                                        |      
|                                                                                                              | Depreciation and amortization                                                                        |                                        | 91    
|                                                                                                              | Provision for related party receivable                                                               |                                        |      
|                                                                                                              | Provision for doubtful accounts                                                                      |                                        | (4    
|                                                                                                              | Gain on extinguishment of liabilities                                                                |                                        | (2,695
|                                                                                                              | Change in current and deferred taxes                                                                 |                                        | (19   
|                                                                                                              | Equity in net loss of affiliates                                                                     |                                        | 2     
|                                                                                                              | Changes in operating assets and liabilities, net of the effect of the extinguishment of liabilities: |                                        |       
|                                                                                                              |                                                                                                      | Accounts receivable                    |       
|                                                                                                              |                                                                                                      | Inventories                            |       
|                                                                                                              |                                                                                                      | Accounts payable                       |       
|                                                                                                              |                                                                                                      | Accrued expenses and other liabilities |       
|                                                                                                              |                                                                                                      |                                        |       
|Net cash used in operating activities of continuing operations                                                |                                                                                                      | (84                                    | )     
|                                                                                                              |                                                                                                      |                                        |       
|Cash flow from investing activities:                                                                          |                                                                                                      |                                        |       
|Purchases of property, plant and equipment                                                                    |                                                                                                      | (20                                    | )     
|Purchases of interest in related parties                                                                      |                                                                                                      |                                       |       
|Proceeds from the sale of investments in securities                                                           |                                                                                                      | 29                                     |       
|Proceeds from the sale of long-lived assets                                                                   |                                                                                                      | 23                                     |       
|Sale of interest in related parties                                                                           |                                                                                                      | 108                                    |       
|                                                                                                              |                                                                                                      |                                        |       
|Net cash provided by investing activities                                                                     |                                                                                                      | 140                                    |       
|                                                                                                              |                                                                                                      |                                        |       

5

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|Cash flow from financing activities:                                         |  |      |   |        |  
|---------------------------------------------------------------------------- |  | ---- | - | ------ | -
|Repayment of short-term debt                                                 |  | (7   | ) | (80    | )
|Repayments of long-term debt                                                 |  | (156 | ) | (71    | )
|Distribution to creditors under the scheme relating to debt and borrowings * |  | (330 | ) |       |  
|Net cash provided by related parties                                         |  |     |   | 24     |  
|Restricted cash transferred from/(to) secured accounts                       |  | 755  |   | (816   | )
|                                                                             |  |      |   |        |  
|Net cash provided by/(used in) financing activities                          |  | 262  |   | (943   | )
|                                                                             |  |      |   |        |  
|Net cash provided by/(used in) discontinued operations                       |  | 5    |   | (7     | )
|Effects of exchange rate changes on cash and cash equivalents                |  | (37  | ) | (55    | )
|                                                                             |  |      |   |        |  
|Net increase/(decrease) in cash and cash equivalents                         |  | 286  |   | (1,021 | )
|Cash and cash equivalents, beginning of period                               |  | 192  |   | 1,229  |  
|                                                                             |  |      |   |        |  
|Cash and cash equivalents, end of period                                     |  | 478  |   | 208    |  
|                                                                             |  |      |   |        |  
|Supplemental disclosure of cash flow activity:                               |  |      |   |        |  
|Cash payments for interest                                                   |  | 34   |   | 209    |  
|Cash payments/(receipts) for income taxes                                    |  | 3    |   | (32    | )
|Issuance of shares to extinguish liabilities                                 |  | 562  |   |       |  
|Distribution of warrants to former Marconi plc shareholders                  |  | 12   |   |       |  
|Gain on extinguishment of related party liabilities                          |  | 507  |   |       |  
|Issuance of new debt to extinguish liabilities                               |  | 690  |   |       |  
|Distribution to creditors under the scheme relating to operating activities  |  | 10   |   |       |  

---

See
notes to condensed consolidated financial statements.

6

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Marconi Corporation plc and subsidiaries        CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)        (Unaudited)

|                                                                     |  | Ordinary shares |   |      |   |    |  |       |   |        |   | Accumulated
Other
Comprehensive
Income/(Loss) |   |      |  
|-------------------------------------------------------------------- |  | --------------- | - | ---- | - | -- |  | ----- | - | ------ | - | --------------------------------------------- | - | ---- | -
|
|
|
|As of March 31, 2003                                                 |  | 573,250,147     |   | 143  |   |   |  | 895   |   | (4,055 | ) |                                              |   | (317 | )
|Net income                                                           |  |                |   |     |   |   |  |      |   | 2,695  |   |                                              |   |     |  
|Cancellation of old share capital                                    |  | (573,250,147    | ) | (143 | ) |   |  | (895  | ) | 695    |   | 343                                           |   |     |  
|Gain on extinguishment of related party liabilities                  |  |                |   |     |   |   |  | 507   |   |       |   |                                              |   |     |  
|Gain on waiver of related party payable                              |  |                |   |     |   |   |  | 25    |   |       |   |                                              |   |     |  
|Issuance of ordinary shares in exchange for extinguished liabilities |  | 200,000,000     |   | 50   |   |   |  | 512   |   |       |   |                                              |   |     |  
|Issuance of ordinary shares on exercise of warrants                  |  | 3,769           |   |     |   |   |  |      |   |       |   |                                              |   |     |  
|Distribution of warrants                                             |  |                |   |     |   | 12 |  |      |   | (12    | ) |                                              |   |     |  
|Adjustment to capital reduction reserve                              |  |                |   |     |   |   |  |      |   | 9      |   | (9                                            | ) |     |  
|Capital contribution for stock-based compensation                    |  |                |   |     |   |   |  | 27    |   |       |   |                                              |   |     |  
|Minimum pension liability                                            |  |                |   |     |   |   |  |      |   |       |   |                                              |   | 17   |  
|Translation adjustments                                              |  |                |   |     |   |   |  |      |   |       |   |                                              |   | (2   | )
|                                                                     |  |                 |   |      |   |    |  |       |   |        |   |                                               |   |      |  
|As of December 31, 2003                                              |  | 200,003,769     |   | 50   |   | 12 |  | 1,071 |   | (668   | ) | 334                                           |   | (302 | )
|                                                                     |  |                 |   |      |   |    |  |       |   |        |   |                                               |   |      |  

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See notes to condensed consolidated financial statements.

7

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Marconi Corporation plc and subsidiaries        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        (Unaudited)

1.     Nature of Business and basis of preparation:

Nature of business

Marconi Corporation plc and its subsidiaries and joint ventures (together the "Company") is a multi-regional provider of telecommunications equipment and
services which it supplies to major telecommunication network operators, government agencies and selected large enterprises world-wide. In connection with the Financial Restructuring (see
note 2), the Company adopted a new reporting structure that segments its business along geographical lines. Commencing with the fiscal quarter ended September 30, 2003, the Company has
reported the results of the main businesses based in the U.S. (North American Ring-Fence or "NARF") separately from the results of its businesses based in Europe and the Rest of the
World other than the U.S. (Non Ring-fenced businesses or "Non NARF") as follows:



As
disclosed in note 13, NAA has been classified as a discontinued operation in the accompanying financial statements.

Basis of preparation

The condensed consolidated financial statements as at December 31, 2003 and for the three and nine months ended December 31, 2003 and 2002, include,
in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the financial position, results of operations and cash
flows as of December 31, 2003 and for all periods presented. These financial statements are unaudited and have been prepared on a basis substantially consistent with the audited consolidated
financial statements of the Company as of and for the year ended March 31, 2003, included in the Company's Annual Report on Form 20-F as filed with the Securities and
Exchange Commission ("Form 20-F").

The
condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting
principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the Form 20-F for the year ended March 31, 2003. The results of operations for the three and nine
months ended December 31, 2003 are not necessarily indicative of the operating results to be expected for the year ending March 31, 2004. Certain amounts in prior periods' financial
statements and related notes have been reclassified to conform to the current period presentation.

The
preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported

8

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amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Net
income and cash flows of non-U.K. pounds sterling subsidiaries and equity investments are translated at the average rates of exchange during the period. The assets and
liabilities of such entities are translated at period-end rates of exchange. Translation adjustments
are included in other comprehensive (loss)/income as a separate component of shareholders' equity/(deficit).

Currency translation

Transactions denominated in foreign currencies are translated into the functional currency at the rates ruling at the dates of the transactions. Monetary assets
and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the rates ruling at that date.

Key
exchange rates relative to U.K. pounds sterling are as follows:

|            |  | Average rates |  |       |  |      
|----------- |  | ------------- |  | ----- |  | -----
|
|
|
|U.S. Dollar |  | 1.659         |  | 1.539 |  | 1.790
|Euro        |  | 1.430         |  | 1.574 |  | 1.419

Recently issued accounting pronouncementsnot yet adopted



9

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2.     Financial Restructuring

On May 19, 2003, Marconi Corporation plc and its former parent holding company, Marconi plc (now known as M (2003) plc),
concluded a Financial Restructuring. The Financial Restructuring was effected through two separate "schemes of arrangement" under the U.K. Companies Act 1985. A scheme of arrangement is a procedure
under English law through which a company may enter into a voluntary compromise or arrangement with one or more classes of its creditors to effect a financial restructuring of its financial
obligations. One scheme of arrangement involved all of the creditors of the Company, other than certain excepted categories of creditors but including the syndicate banks and bondholders to whom the
primary financial indebtedness was owed. The second scheme of arrangement involved creditors of M (2003) plc, the Company's former parent holding company. In connection with the
Financial Restructuring, the existing share capital of Marconi Corporation plc was converted to non-voting deferred shares, and subsequently cancelled through a capital reduction.
As a result, Marconi Corporation plc became the new parent holding company of the group, replacing M (2003) plc, and M (2003) plc ceased to be a member of the group.

As
part of the Financial Restructuring, the Company entered into an agreement with M (2003) plc to reassign and waive some intra group balances. In addition, the Company
provided for amounts due to it from M (2003) plc, which were schemed.

The
Company's Financial Restructuring covered approximately £4.8 billion of creditors' claims comprising £4.0 billion of syndicated bank debt and
the externally held U.S. dollar and euro denominated bonds and £800 million of related party debt. In exchange for the cancellation of their

10

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claims
against Marconi Corporation plc on May 19, 2003 the Company distributed to the creditors covered by the scheme of arrangement:



In
addition, on May 19, 2003, the Company issued 5 million ordinary shares (one million after a one for five share consolidation that occurred in September 2003),
representing 0.5% of the Company's issued ordinary share capital on May 19, 2003, and warrants, exercisable at £1.50 per share (£1.50 per one-fifth of a
share following one for five share consolidation that occurred in September 2003), to subscribe for up to 50 million additional ordinary shares (10 million after the one for five
share consolidation that occurred in September 2003), equal to 5% of our issued ordinary share capital on May 19, 2003, to shareholders of M (2003) plc. The issuance of the
warrants to the former shareholders in M (2003) plc was accounted for as a distribution. In connection with the Financial Restructuring, the Company listed its ordinary shares on the
London Stock Exchange ("LSE") and established an American Depositary Receipt ("ADR") program in respect of those shares.

In
connection with the Financial Restructuring, the ordinary shares of M (2003) plc were delisted from the LSE. While M (2003) plc's ordinary shares remain
outstanding, all of M (2003) plc's remaining assets, other than assets necessary to fund the cost of administering its scheme of arrangement, will be distributed to
M (2003) plc's creditors over time in accordance with its scheme of arrangement. Management expects that M (2003) plc will be liquidated or dissolved in the future
following the completion of those distributions.

The
Company recognized a gain upon extinguishment of its liabilities under the terms of the Financial Restructuring of approximately £3.2 billion, of which
£2.7 billion has been recorded in the consolidated statement of operations and £0.5 billion has been recorded in shareholders' equity.

The
gain was allocated to shareholders' equity to the extent that it related to the extinguishment of related party liabilities and to the statement of operations to the extent that it
related to the

11

---

extinguishment
of third party liabilities. The gain on extinguishment of the liabilities is determined in accordance with APB Opinion 26,Extinguishment of
Debt, as follows (in £ millions):

|Carrying value of extinguished third party liabilities                                                    |  |       |  
|--------------------------------------------------------------------------------------------------------- |  | ----- | -
|Short-term borrowings                                                                                     |  | 2,124 |  
|Current maturities of long-term debt (held by third parties)                                              |  | 1,808 |  
|Debt issuance costs on extinguished debt                                                                  |  | (23   | )
|Corporate tax obligations                                                                                 |  | 10    |  
|Other current liabilities                                                                                 |  | 3     |  
|Accrued interest accrued on long-term debt and short term borrowings                                      |  | 113   |  
|                                                                                                          |  |       |  
|Total carrying value of extinguished third party liabilities                                              |  | 4,035 |  
|                                                                                                          |  |       |  
|Carrying value of extinguished related party liabilities                                                  |  |       |  
|Current maturities of long term debt (held by related parties)                                            |  | 385   |  
|Debt issuance costs on extinguished bonds                                                                 |  | (4    | )
|Amounts owed to M (2003) plc and fellow subsidiaries                                                      |  | 378   |  
|                                                                                                          |  |       |  
|Total carrying value of extinguished related party liabilities                                            |  | 759   |  
|                                                                                                          |  |       |  
|Total carrying value of liabilities extinguished                                                          |  | 4,794 |  
|                                                                                                          |  |       |  
|Less fair value of consideration of new shares, new debt and cash exchanged for liabilities extinguished: |  |       |  
|Cash                                                                                                      |  | (340  | )
|Debt:                                                                                                     |  |       |  
|Senior Notes repayable April 2008 at fair value (b)(c)                                                    |  | (407  | )
|Junior Notes repayable October 2008 at fair value (b)(c)                                                  |  | (291  | )
|Debt issuance costs                                                                                       |  | 8     |  
|                                                                                                          |  |       |  
|Carrying value of new debt, net of issuance costs                                                         |  | (690  | )
|                                                                                                          |  |       |  
|Equity:                                                                                                   |  |       |  
|New shares (a)                                                                                            |  | (570  | )
|Equity issuance costs                                                                                     |  | 8     |  
|                                                                                                          |  |       |  
|Fair value of new equity                                                                                  |  | (562  | )
|                                                                                                          |  |       |  
|Gain on extinguishment of liabilities                                                                     |  | 3,202 |  
|                                                                                                          |  |       |  
|Allocation of gain on extinguishment of liabilities:                                                      |  |       |  
|Gain on extinguishment of third party liabilities                                                         |  | 2,695 |  
|Gain on extinguishment of related party liabilities                                                       |  | 507   |  
|                                                                                                          |  |       |  
|                                                                                                          |  | 3,202 |  
|                                                                                                          |  |       |  

---

12

---

The
Employee Share Option Plans ("ESOP") derivative settlement was conditional on the Financial Restructuring becoming effective. Accordingly, the ESOP derivative settlement became
effective on May 19, 2003. As a result, the Company paid £35 million in cash to the ESOP derivative banks to settle the liability to the ESOP derivative banks recorded in the
consolidated balance sheet as of March 31, 2003. The resulting gain, arising on the release of this liability, of £123 million is reflected in the statement of operations for
the first quarter of fiscal 2004.

The
Financial Restructuring of M (2003) plc and Marconi Corporation plc was implemented by way of two separate schemes of arrangement under section 425 of the
U.K. Companies Act 1985. As a result,
the gain on extinguishment described above will not give rise to any taxable amounts. Note 20,Income Taxesin the Form 20-F
for the year ended March 31, 2003 describes the effect of the Financial Restructuring on our tax position.

The
following unaudited pro forma data illustrates the impact that the Financial Restructuring would have had on the consolidated statement of operations for the nine months ended
December 31, 2003 and 2002 as if the Financial Restructuring had been completed on April 1, 2002.

| |                                           | Nine months ended December 31, |      
| | ----------------------------------------- | ------------------------------ | -----
|
|
| |                                           |                                |      
| | Operating loss                            |                                | (234 
| | Income/(loss) from continuing operations  |                                | 2,634
| | Income/(loss) per sharebasic and diluted |                                | 13.17

3.     Selected balance sheet information

Restricted cash

Cash balances pledged or advanced as collateral are considered to be restricted cash. At December 31, 2003 and March 31, 2003, the total restricted
cash was £209 million and £964 million

13

---

respectively.
Of the total restricted cash balance, £nil (£771 million at March 31, 2003) was held in secured accounts, £145 million
(£135 million at March 31, 2003) relates to cash collateral placed against bonding facilities, £nil (£27 million at March 31, 2003)
relates to cash held in "ESOP" escrow accounts; £19 million (£17 million at March 31, 2003) relates to cash in insurance reserves,
£13 million (£14 million at March 31, 2003) relates to cash deposited against secured loans in Italy and £32 million (£nil
at March 31, 2003) relates to cash held in a Mandatory Redemption Escrow Account ("MREA") (see note 5).

Inventories, net

Inventories, net are comprised of the following at December 31, 2003 and March 31, 2003.

|             |                 | December 31,
2003 |    | March 31,
2003
|------------ | --------------- | ----------------- | -- | --------------
|
|
|Inventories: |                 |                   |    |               
|             | Finished goods  |                   | 79 |               
|             | Work-in-process |                   | 47 |               
|             | Raw materials   |                   | 62 |               
|             |                 |                   |    |               
|             |                 | Total             |    | 188           
|             |                 |                   |    |               

4.     Employee stock option plans

SFAS 148,Accounting for Stock-Based CompensationTransition and
Disclosure of Amendment of FASB Statement No. 123, amends the disclosure requirements of SFAS No. 123,Accounting for Stock-Based
Compensation("SFAS 123"), to require more prominent disclosures in both annual and interim financial statements regarding the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.

Prior
to the completion of the Financial Restructuring described in note 2, employees of the Company participated in a number of stock option plans whereby they received rights
over shares in M (2003) plc, the former parent company of the Company. The Company accounted for those employees stock options under APB No. 25,Accounting
for Stock Issued to Employees("APB 25") with any expense being matched by a credit to shareholders' equity as a capital contribution by M (2003) plc. Following
the completion of the Financial Restructuring, the Company is no longer a subsidiary of M (2003) plc and no further cost is recorded in respect of these stock option plans.

Following
the Financial Restructuring, the Company established two plans under which it grants options over its own shares: a nil cost senior management share option plan and a market
value employee share option plan. The Company accounts for such employee share plans under APB 25.

Marconi Corporation Senior Management Share Option Plan

Under the Marconi Corporation nil cost Share Option Plan announced at the time of the Financial Restructuring, participants selected by the remuneration committee
may be granted performance-

14

---

related
awards entitling them to be granted a right to call for a number of ordinary shares of the Company without payment based on the attainment of certain performance criteria. The initial options
under this scheme were approved on June 24, 2003 and are exercisable in five tranches, each of which is subject to different performance conditions. The options have a ten-year term
and may be satisfied using newly issued or existing Marconi Corporation shares. The Company applies variable plan accounting for grants under this plan and recognizes compensation cost over the
vesting period when achievement of the performance conditions becomes probable. The performance targets for the first three tranches are linked to the repayment of the Company's debt and for the last
two tranches are linked to achieving market capitalization targets. For those tranches subject to market capitalization targets, no compensation cost will be recognized until the targets are achieved.
The market capitalization target for the fourth tranche of options was reached in November 2003 and compensation cost has now been accrued for the fourth tranche. As at December 31,
2003, nil cost options over 16,230,000 shares (after a one for five share consolidation that occurred in September 2003) have been granted under this plan.

Marconi Corporation Employee Share Option Plan

Under the Marconi Corporation Employee Share Option Plan, participants selected by the remuneration committee may be granted performance-related awards entitling
them to be granted a right to call for a number of ordinary shares of the Company based on the attainment of certain performance criteria. The exercise price of options granted under this plan will be
determined by the remuneration committee but will be based on the market value of a Marconi Corporation Share at the date of the grant. The initial options under this scheme were approved on
June 30, 2003 and are exercisable in five tranches, each of which will be subject to the same performance conditions as the Marconi Corporation Senior Management Share Option Plan. The options
have a ten-year term and may be satisfied using newly issued or existing Marconi Corporation shares. The Company applies variable plan accounting for grants under this plan and recognizes
compensation cost over the vesting period when achievement of the performance conditions becomes probable. The market capitalization target for the fourth tranche of options was reached in
November 2003 and compensation cost has now been accrued for the fourth tranche. As at December 31, 2003, options over 6,079,800 shares (after a one for five share consolidation that
occurred in September 2003) have been granted under this plan.

The
Company recognized compensation expense, in relation to these plans, in the three and nine months ended December 31, 2003 of approximately £22 million and
£29 million respectively. Had

15

---

compensation
cost for the employee share plans been determined consistent with the fair value methodology of SFAS 123, the Company's net income/(loss) would have been as follows:

|                                                                                                                     |             | Nine months ended December 31, |      
|-------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------------------ | -----
|
|
|Net income/(loss)                                                                                                    |             | 2,695                          |      
|                                                                                                                     | As reported |                                |      
|Deduct: Total stock-based employee compensation determined under fair value based method, net of related tax effects |             | (4                             | )    
|Add back: Total stock-based employee compensation determined under APB 25                                            |             | 29                             |      
|                                                                                                                     |             |                                |      
|Pro forma income/(loss)                                                                                              |             | 2,720                          |      
|                                                                                                                     |             |                                |      
|Pro forma income/(loss) per share:                                                                                   |             |                                |      
|                                                                                                                     | Basic       |                                | 10.20
|                                                                                                                     |             |                                |      
|                                                                                                                     | Diluted     |                                | 10.09
|                                                                                                                     |             |                                |      

Under
SFAS 123, the fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

|                        |  | Nine months ended
December 31,
|----------------------- |  | ------------------------------
|
|Risk-free interest rate |  | 4.21                          
|Expected life (years)   |  | 10                            
|Assumed volatility      |  | 66.4                          
|Expected dividends      |  |                              

16

---

5.     Debt and credit facilities

Long-term debt

|                                     |                      | December 31,
2003 |     | March 31,
2003 |      
|------------------------------------ | -------------------- | ----------------- | --- | -------------- | -----
|
|Restructured debt                    |                      |                  |     | 2,221          |      
|U.S.$ denominated Senior Notes       |                      | 376               |     |               |      
|U.S.$ denominated Junior Notes       |                      | 125               |     |               |      
|Other bank debt                      |                      | 27                |     |               |      
|Finance leases                       |                      | 2                 |     |               |      
|                                     |                      |                   |     |                |      
|                                     | Total obligations    |                   | 530 |                | 2,221
|Current maturities of long-term debt |                      | (26               | )   | (2,191         | )    
|                                     |                      |                   |     |                |      
|                                     | Total long-term debt |                   | 504 |                | 30   
|                                     |                      |                   |     |                |      

Financial Restructuring

On May 19, 2003, the Company issued the following debt as part of its Financial Restructuring:



The
aggregate fair value on May 19, 2003 of the notes issued was approximately £698 million. The new notes issued on May 19, 2003 include a 10% premium
upon early redemption, which has been accounted for as an embedded derivative and is fair valued at the end of each period. The fair value of the embedded derivative at December 31, 2003 was
approximately £13 million in relation to the Junior Notes and £20 million in relation to the Senior Notes. £2.6 million of the embedded
derivative on the Junior Notes is included in short-term other liabilities and the remainder is included within long-term other liabilities. For further details on the
Financial Restructuring, refer to note 2.

On
September 19, 2000, the Company issued for cash consideration, two unsecured yankee bonds having an aggregate principal amount of U.S.$1.8 billion (approximately
£1.3 billion). One bond was issued for U.S.$900 million (approximately £630 million) with a coupon rate of 7.75% per annum, maturing on
September 15, 2010. The other bond was issued for $900 million (approximately £630 million) with a coupon rate of 8.375% per annum, maturing on September 15,
2030. On March 17, 2003, the Company failed to meet a scheduled interest payment on these bonds. As a result, at March 31, 2003, these bonds were repayable on demand.

On
March 30, 2000, the Company issued for cash consideration two unsecured euro bonds having an aggregate principal amount of €1.5 billion (approximately
£927 million). One bond was issued for €500 million (approximately £309 million) with a coupon rate of 5.625% per annum, maturing on
March 30, 2005. The other bond was issued for €1,000 million (approximately £618 million) with a coupon rate of 6.375% per annum, maturing on
March 30, 2010.

17

---



Both the yankee bonds and the euro bonds were extinguished by the Financial Restructuring and are no longer outstanding. For further details on the impact of the
Financial Restructuring on the long-term debt, refer to note 2.

Early debt repayment

The Company redeemed U.S.$249 million (approximately £150 million) of the aggregate principal amount of the Junior Notes in the nine
month period ended December 31, 2003. The redemptions resulted from:





18

---



Key covenants

The significant covenants have been described in the Scheme Document that was filed on Form 6-K with the SEC on March 31, 2003.

6.     Business restructuring charges

In September 2001, following the sudden and significant downturn in trading in the global telecommunications markets, the results of an operational review
that had three main objectives were announced. The original objectives were to focus the business on core operations, manage the non-core operations for value, reduce group indebtedness
from £4.4 billion at August 31, 2001 to between £2.7 billion and £3.2 billion by March 31, 2002 and reduce the annual operating
cost base. These objectives have now been revised to reflect further operating cost base reductions during fiscal 2004.

When
management reviews the operating income performance of the segments described in note 10, management uses the U.K. GAAP operating profit/(loss) before central and head office
costs, goodwill and intangible asset amortization, U.K. GAAP operating exceptional items, gains and losses on business disposal and the impact of less than 50% owned affiliates. This measure does not
include business restructuring charges. Accordingly, a segmental analysis of business restructuring charges has not been provided.

The
following table shows the activity by statement of operations heading and the balances remaining in accrued expenses and other liabilities at December 31, 2003 following the
implementation of actions required to achieve these objectives.

|                                                |  | Balance at
March 31,
2003 |  | Charged |  | Net cash
Payments |   | Non cash
Movement |   | Balance at
December 31,
2003
|----------------------------------------------- |  | ------------------------- |  | ------- |  | ----------------- | - | ----------------- | - | ----------------------------
|
|                                                |  |                           |  |         |  |                   |   |                   |   |                             
|Employee severance                              |  | 10                        |  | 48      |  | (32               | ) |                  |   | 26                          
|Site rationalization                            |  | 36                        |  | 8       |  | (17               | ) | (1                | ) | 26                          
|Contractual commitments and other restructuring |  | 3                         |  |        |  | (2                | ) |                  |   | 1                           
|Advisor fees                                    |  | 1                         |  | 42      |  | (33               | ) | (2                | ) | 8                           
|                                                |  |                           |  |         |  |                   |   |                   |   |                             
|Total                                           |  | 50                        |  | 98      |  | (84               | ) | (3                | ) | 61                          
|                                                |  |                           |  |         |  |                   |   |                   |   |                             

Employee severance

As a consequence of the objective to reduce the annual operating cost base, the Company recorded a charge of £48 million during the nine months
ended December 31, 2003 associated with redundancy payments for approximately 1,200 employees. Management expects that the majority of the

19

---

remaining
balance of £26 million at December 31, 2003, which covers approximately 400 further employees, will be paid out in fiscal 2004.

In
the nine months ended December 31, 2002, the Company recorded a charge of £105 million to reflect the charges associated with voluntary redundancy payments
for approximately 5,000 employees, while cash payments of £134 million were made in the same period.

Site rationalization

The charge of £8 million in respect of site rationalization in the nine months ended December 31, 2003 represents additional costs
associated with closing and consolidating various sites around the world as part of the business restructuring. Cash payments of £17 million were made in respect of these site
closures and consolidations.

In
the nine months ended December 31, 2002, the Company recorded a charge of £36 million and made cash payments of £40 million in respect of
these site closures and consolidations.

Contractual commitments and other restructuring

The Company made cash payments of £2 million in respect of contractual commitments and other restructuring in the nine months ended
December 31, 2003. The balance of £1 million at December 31, 2003 represents other miscellaneous costs associated with the restructuring program.

In
the nine months ended December 31, 2002 the Company made cash payments of £Nil in respect of these other restructuring associated costs.

Advisor fees

The charge of £42 million in respect of advisor fees for the nine months ended December 31, 2003 represents charges from the Company's
external advisors with respect to services rendered in the period related to the Financial Restructuring. Of the £42 million charge in the period, £13 million
relates to costs, which were prepaid at March 31, 2003. In addition, the Company now expects to incur approximately £36 million of cash costs during fiscal 2004 in relation
to the Financial Restructuring, £33 million of which was paid out during the nine months ended December 31, 2003.

In
the nine months ended December 31, 2002, the Company recorded a charge of £37 million and made cash payments of £37 million in respect of
advisor fees.

Systems implementation

During fiscal 2002 the Company planned to implement a new global information technology system. In light of the revised trading outlook and the continued focus on
cost reduction, the implementation was terminated. In the nine months ended December 31, 2002 £7 million of costs previously charged were released. Payments of
£17 million were made in the same period.

20

---

7.     Goodwill, net

The changes in the carrying amount of goodwill for the nine months ended December 31, 2003, are as follows:

|                             |                        | Cost  |    | Accumulated
Amortization |   | Total |   
|---------------------------- | ---------------------- | ----- | -- | ------------------------ | - | ----- | --
|
|Balance at March 31, 2003    |                        | 1,807 |    | (1,223                   | ) | 584   |   
|                             | Translation adjustment |       | (5 | )                        |  |       | (5
|                             |                        |       |    |                          |   |       |   
|Balance at December 31, 2003 |                        | 1,802 |    | (1,223                   | ) | 579   |   
|                             |                        |       |    |                          |   |       |   

8.     Intangibles, net

The changes in the carrying amount of intangibles for the nine months ended December 31, 2003, are as follows:

|                             |                      | Cost |   | Accumulated
Amortization |     | Total |    
|---------------------------- | -------------------- | ---- | - | ------------------------ | --- | ----- | ---
|
|Balance at March 31, 2003    |                      | 372  |   | (271                     | )   | 101   |    
|                             | Amortization expense |      |  |                          | (34 | )     | (34
|                             |                      |      |   |                          |     |       |    
|Balance at December 31, 2003 |                      | 372  |   | (305                     | )   | 67    |    
|                             |                      |      |   |                          |     |       |    

Intangible
amortization expense based on December 31, 2003 intangibles for the next five years is expected to be:

|                       |  | (in £ millions)
|---------------------- |  | ---------------
|Fiscal 2004 (3 months) |  | 11             
|Fiscal 2005            |  | 44             
|Fiscal 2006            |  | 12             
|Fiscal 2007            |  |               
|Fiscal 2008            |  |               

21

---

9.     Other comprehensive (loss)/income

Comprehensive (loss)/income represents the net (loss)/income for the period plus the results of certain shareholders (deficit)/equity changes that are not
reflected in the condensed consolidated statements of operations.

|                                   |                                               | Three months ended
December 31, |   | Nine months ended
December 31, |  
|---------------------------------- | --------------------------------------------- | ------------------------------- | - | ------------------------------ | -
|
|
|Other comprehensive income:        |                                               |                                 |   |                                |  
|Net (loss)/income                  |                                               | (117                            | ) | (167                           | )
|Other comprehensive (loss)/income: |                                               |                                 |   |                                |  
|                                   | Accumulated translation adjustments           |                                 | 9 |                                | 
|                                   | Minimum pension liability                     |                                 |  |                                | 
|                                   | Net unrealized loss on derivative instruments |                                 |  |                                | 
|                                   |                                               |                                 |   |                                |  
|Other comprehensive (loss)/income  |                                               | (108                            | ) | (167                           | )
|                                   |                                               |                                 |   |                                |  

10.   Segment and related information disclosures

In connection with the Financial Restructuring, the Company adopted a new reporting structure that segments the businesses along geographical lines. Commencing
with the quarter ended September 30, 2003, the Company has reported the results of the businesses based in the U.S. (North American Ring-fence or "NARF") separately from the results
of the businesses based in Europe and the rest of the world other than the U.S. (Non-Ring-fenced businesses or "Non NARF") as follows:



NAA
has been classified as a discontinued operation in the accompanying financial statements.

The
new segmentation is connected with the contractual separation or "ring-fencing" of the main U.S. based businesses that the Company implemented as part of the Financial
Restructuring.

During
the periods to June 30, 2003, the Company had divided the continuing operations into three separate segments: Network Equipment, Network Services and Other as follows:



22

---



Commencing
with the quarter ended September 30, 2003, the Company reflected segment information on both the new and old bases, as it is impracticable to restate prior period
information, with the exception of revenue information.

In
certain specific cases prior to the completion of the Financial Restructuring and the implementation of the North American Ring Fence, the Company entered into contracts with
customers for the supply of equipment or services, which now form part of the Non-Ring-fenced business but did this through entities, which now form part of NARF (or vice
versa). These revenues are shown in the product or service area from which the revenue originated rather than through the entity that invoiced the final customer. A detailed footnote is provided to
reconcile the product area sub-totals to the NARF and Non NARF revenues as they are recorded in the NARF and Non NARF consolidated financial statements (see Note 17). During the
nine months ended
December 31, 2003, revenues of NARF products direct to customers and through Non NARF entities totalled £388 million and revenues of products or services from Non NARF
businesses sold through NARF entities totalled approximately £7 million bringing total NARF revenues to £395 million for the nine months ended December 31,
2003.

The
indentures governing the Notes issued in the Financial Restructuring require that we provide certain financial information with respect to each of (i) Marconi Corporation plc
and its Non-U.S. Subsidiaries (as defined in the Indentures) and (ii) Marconi Communications, Inc. (which is the holding Company of our U.S. operations) and its Subsidiaries
(as defined). For these purposes the Non NARF segment is equivalent to Marconi Communications, Inc. and its Subsidiaries. In accordance with the requirements of the indentures, we will provide
the additional financial information until the Junior Notes are repaid in full.

Segmental performance

The U.S. Financial Accounting Standards Board standardStatement of Financial Accounting Standards
No. 131Disclosure about Segments of an Enterprise and Related Informationrequires the Company to determine and review its segments
as reflected in the management information systems reports that its managers use in making decisions. As the Company is an English company and prepares its consolidated statutory financial statements
under U.K. GAAP, its chief operating decision-maker evaluates the Company's segment performance using U.K. GAAP measures.

Revenues
and operating profits are measured on a segmental basis in accordance with U.K. GAAP (defined as operating (loss)/profit of continuing operations before central costs, goodwill
amortization, U.K. GAAP operating exceptional items and share option costs). In the tables below, this measure is referred to as segment operating (loss)/profit.

The
following tables present the Company's revenues, operating (loss)/income before central costs, goodwill amortization, U.K. GAAP operating exceptional items and share option costs and
other

23

---

financial
data from the Company's reportable segments presented in accordance with U.K. GAAP and then reconciled to U.S. GAAP financial information consolidated totals:

Analysis of reportable segments (U.K. GAAP)

New Segments

|                          |  | Three months ended December 31, 2003 | 
|------------------------- |  | ------------------------------------ | 
|
|
|NARF                      |  | 135                                  | 
|Non NARF                  |  | 273                                  | 
|                          |  |                                      | 
|Segmental totalU.K. GAAP |  | 408                                  | 
|                          |  |                                      | 

|                          |  | Nine months ended December 31, 2003 | 
|------------------------- |  | ----------------------------------- | 
|
|
|NARF                      |  | 395                                 | 
|Non NARF                  |  | 769                                 | 
|                          |  |                                     | 
|Segmental totalU.K. GAAP |  | 1,164                               | 
|                          |  |                                     | 

Old Segments

|                        |  | Three months ended December 31, 2003 | 
|----------------------- |  | ------------------------------------ | 
|
|
|Network Equipment       |  | 267                                  | 
|Network Services        |  | 141                                  | 
|                        |  |                                      | 
|Segment totalU.K. GAAP |  | 408                                  | 
|                        |  |                                      | 

24

---

|                           |  | Nine months ended December 31, 2003 | 
|-------------------------- |  | ----------------------------------- | 
|
|
|Network Equipment          |  | 747                                 | 
|Network Services           |  | 417                                 | 
|Other                      |  |                                    | 
|                           |  |                                     | 
|Segment totalU.K. GAAP(2) |  | 1,164                               | 
|                           |  |                                     | 

|                           |  | Three months ended December 31, 2002 | 
|-------------------------- |  | ------------------------------------ | 
|
|
|Network Equipment          |  | 261                                  | 
|Network Services           |  | 195                                  | 
|Other                      |  | 10                                   | 
|                           |  |                                      | 
|Segment totalU.K. GAAP(2) |  | 466                                  | 
|                           |  |                                      | 

|                           |  | Nine months ended December 31, 2002 | 
|-------------------------- |  | ----------------------------------- | 
|
|
|Network Equipment          |  | 861                                 | 
|Network Services           |  | 587                                 | 
|Other                      |  | 37                                  | 
|Discontinued(1)            |  | 87                                  | 
|                           |  |                                     | 
|Segment totalU.K. GAAP(2) |  | 1,572                               | 
|                           |  |                                     | 

---

Major customers

British Telecommunications plc ("BT") accounted for 18% and 20% of revenues for the three months ended December 31, 2003 and 2002 respectively and 20% and
18% of revenue for the nine months ended December 31, 2003 and 2002 respectively.

25

---

Analysis of revenue by product (U.K. GAAP)

|                                                      |       | Three months ended
December 31, |     | Nine months ended
December 31,
|----------------------------------------------------- | ----- | ------------------------------- | --- | ------------------------------
|
|
|Network Equipment:                                    |       |                                 |     |                               
|Optical Networks                                      |       | 81                              |     | 96                            
|BBRS                                                  |       | 30                              |     | 32                            
|European Access                                       |       | 62                              |     | 69                            
|North American Access                                 |       | 34                              |     | 23                            
|Outside Plant & Power                                 |       | 43                              |     | 30                            
|Other Network Equipment                               |       | 17                              |     | 11                            
|                                                      |       |                                 |     |                               
|                                                      | Total |                                 | 267 |                               
|                                                      |       |                                 |     |                               
|Network Services:                                     |       |                                 |     |                               
|IC&M                                                  |       | 48                              |     | 53                            
|VAS                                                   |       | 68                              |     | 103                           
|BBRS                                                  |       | 13                              |     | 19                            
|Outside Plant & Power                                 |       | 12                              |     | 20                            
|                                                      |       |                                 |     |                               
|                                                      | Total |                                 | 141 |                               
|                                                      |       |                                 |     |                               
|Total network equipment and network services revenues |       | 408                             |     | 456                           
|                                                      |       |                                 |     |                               
|Total other revenue                                   |       |                                |     | 10                            
|Total discontinued                                    |       |                                |     |                              
|                                                      |       |                                 |     |                               
|Total revenues                                        |       | 408                             |     | 466                           
|                                                      |       |                                 |     |                               

Reconciliation of U.K. GAAP segmental information to U.S. GAAP

Revenue

|                                                     |  | Three months ended
December 31, |   | Nine months ended
December 31, |  
|---------------------------------------------------- |  | ------------------------------- | - | ------------------------------ | -
|
|
|Total segmental revenue in accordance with U.K. GAAP |  | 408                             |   | 466                            |  
|Discontinued operations(1)                           |  | (34                             | ) | (33                            | )
|                                                     |  |                                 |   |                                |  
|Total segmental revenue in accordance with U.S. GAAP |  | 374                             |   | 433                            |  
|                                                     |  |                                 |   |                                |  

---

26

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Operating (loss)/income

|                                                                       |  | Three months ended
December 31, |   | Nine months ended
December 31, |  
|---------------------------------------------------------------------- |  | ------------------------------- | - | ------------------------------ | -
|
|
|Segmental operating profit/(loss) per U.K. GAAP                        |  | 13                              |   | (37                            | )
|Amortization expense                                                   |  | (25                             | ) | (28                            | )
|General corporate expenses                                             |  | (18                             | ) | (12                            | )
|Share of associates operating loss                                     |  |                                |   | (13                            | )
|Operating exceptional items                                            |  | (36                             | ) | (45                            | )
|                                                                       |  |                                 |   |                                |  
|U.K. GAAP operating loss                                               |  | (66                             | ) | (135                           | )
|Joint ventures and associates operating loss                           |  |                                |   | 13                             |  
|U.K. GAAP operating (profit)/loss of U.S. GAAP discontinued operations |  | (5                              | ) | 13                             |  
|U.S. GAAP adjustments:                                                 |  |                                 |   |                                |  
|Share option plans                                                     |  | (12                             | ) | (4                             | )
|Pension and other post-retirement benefits                             |  | (5                              | ) | (2                             | )
|Intangible asset amortization                                          |  | 15                              |   | 18                             |  
|Restructuring costs                                                    |  | 2                               |   |                               |  
|Gain on sale of long-lived assets                                      |  |                                |   | 5                              |  
|Foreign exchange transaction gains                                     |  |                                |   |                               |  
|Other                                                                  |  |                                |   | (17                            | )
|                                                                       |  |                                 |   |                                |  
|U.S. GAAP operating loss                                               |  | (71                             | ) | (109                           | )
|Gain on settlement of equity forward Contract                          |  |                                |   |                               |  
|Gain on extinguishment of liabilities                                  |  |                                |   |                               |  
|Provision for related party receivable                                 |  |                                |   | (18                            | )
|Gain/(loss) on sale of investments                                     |  |                                |   | 2                              |  
|Impairment of investments                                              |  | (3                              | ) | (1                             | )
|Interest income                                                        |  | 4                               |   | 8                              |  
|Interest expense                                                       |  | (46                             | ) | (35                            | )
|                                                                       |  |                                 |   |                                |  
|U.S. GAAP (loss)/income from continuing operations before income taxes |  | (116                            | ) | (153                           | )
|                                                                       |  |                                 |   |                                |  

U.K.U.S. GAAP adjustments

With the exception of the items below, a description of the significant U.K. GAAP to U.S. GAAP adjustments as they relate to segment information is provided in
note 9,Segment and related information disclosuresin the Form 20-F for the year ended March 31, 2003.

Gain on equity forward contract

At March 31, 2003, the Company recognized a gain under U.K. GAAP of £123 million upon settlement of an equity forward contract related
to the ESOP in place at that time. This gain was not

27

---

recognized
at March 31, 2003 under U.S. GAAP because the settlement was conditional on the Financial Restructuring becoming effective on May 19, 2003. The Company paid
£35 million in cash to the ESOP derivative banks to settle the Company's liability of £158 million as recorded in the consolidated balance sheet of
March 31, 2003. The resulting gain, arising on the release of this liability, of £123 million is reflected in the statement of operations for the nine months ended
December 31, 2003.

Gain on extinguishment of liabilities

As described in note 2, the Company recognized a gain of approximately £3.2 billion on May 19, 2003, the date on which the
Financial Restructuring was completed, of which approximately £2.7 billion was recorded in the consolidated statement of operations and approximately £0.5 billion
was recorded in shareholders' equity/(deficit). This gain represented the excess of the approximately £4.8 billion of creditors' claims extinguished over the fair value, less
issuance costs, of the cash, new debt, and new equity issued in consideration on May 19, 2003. Under U.K. GAAP, the consideration for the shares issued in connection with the Financial
Restructuring was treated as equal to the excess of the creditor's claims extinguished over the cash and new debt issued. Accordingly, all of the gain was recorded in shareholders' equity/(deficit).

Foreign exchange transaction gains

Under U.K. GAAP, foreign exchange rates established by the terms of the Scheme of Arrangement were used in accounting for the gain arising on the extinguishment
of liabilities, whereas under U.S. GAAP, the foreign exchange rate on May 19, 2003 the date of the Financial Restructuring was used. As a result, under U.S. GAAP, the resulting gain is
£31 million higher than the gain recorded under U.K. GAAP.

11.   Commitments and contingencies

Legal proceedings

In the Form 20-F for the year ended March 31, 2003 the Company made disclosure of the lawsuit filed by Bell Communications Research. Inc, now known
as Telcordia Technologies Inc., or Telcordia. In the Form 10-Q for the six months ended September 30, 2003, the Company reported that on September 29, 2003, the district
court held a hearing in relation to that lawsuit to clarify its previous claim construction ruling. Subsequent to the hearing the district court issued an opinion clarifying its original claim
construction in a manner that will permit Telcordia to maintain its claim for infringement of the remaining patent. In the three months to December 31, 2003, the Company has reviewed its
defense to this case and on January 5, 2004, entered into mediation with Telcordia for settlement. On January 12, 2004 the Company entered into a binding memorandum of understanding with
Telcordia wherein we agreed to pay Telcordia U.S.$23.5 million in exchange for a license to Telcordia's ATM patent portfolio and as full and final settlement of all outstanding claims. We are
in the process of negotiating formal definitive agreements. We currently expect to make a payment of U.S.$14 million before March 31, 2004 and the remaining balance over the next three
years. As a consequence of this claim, we have reassessed our provisioning level and recorded a charge of £5 million to our operating results in the three months to
December 31, 2003.

28

---

The
Company is subject to the legal proceedings set out in note 10,Commitments and Contingenciesof the annual report on
Form 20-F for the year ended March 31, 2003. Other than as described above, there have been no material developments in these legal proceedings for the nine months ended
December 31, 2003 nor has there been a material new legal proceeding that has arisen in this period.

The
Company is subject to legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these claims is currently not determinable, the
Company does not expect the ultimate costs to resolve these matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

Third party guarantees

The Company has the following major types of guarantees that are subject to the disclosure requirements of FIN 45,Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.

Financial and other guarantees

The Company and various of its subsidiaries have undertaken, in the normal course of business, to provide support to the joint ventures of the Company, to meet
their liabilities. These undertakings contain financial guarantees. A payment under these undertakings would be required in the event of any of the joint ventures being unable to pay its liabilities.
Payment of this funding would be required if requested by the joint ventures in accordance with the funding agreements. The potential amount of future payments, which may be required to be made by the
Company under these guarantees, is £6 million.

Other
guarantees relate primarily to financial standby letters of credit, irrevocable undertakings to guarantee payment of a specified financial obligation. The maximum potential amount
of future payments, which may be required to be made by the Company under these guarantees, is £92 million.

In
connection with agreements for the sale of portions of its business, including certain discontinued operations, the Company has typically retained the liabilities of a business that
relate to events occurring prior to its sale, such as tax, environmental, litigation and employment matters. The Company generally indemnifies the purchaser of a Marconi business in the event that a
third party asserts a claim against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees typically extend for a number of years.

From
time to time, the Company enters into indemnification agreements with certain contractual parties in the ordinary course of business, including agreements with lenders, lessors,
customers and certain vendors. All such indemnification agreements are entered into in the context of the particular agreements and are provided in an attempt to properly allocate risk of loss in
connection with the consummation of the underlying contractual arrangements. Management believes that the Company maintains adequate levels of insurance coverage to protect the Company with respect to
most claims arising from such agreements and that such agreements do not otherwise have value separate and apart from the liabilities incurred in the ordinary course of the Company's business. There
are no material indemnifications issued since January 1, 2003.

29

---

In
addition, the Company's Senior and Junior Notes are guaranteed by certain of its subsidiaries. The guarantee is a joint and several guarantee of each guarantor of all amounts due with
respect to the Senior and Junior Notes. Payment under the guarantee may be required if the Company fails to make any payment when due in accordance with the terms of the Senior or Junior Notes as
applicable. The potential amount of future payments under the guarantees is the same as under the Senior and Junior Notes, which is the principal amount of such Notes plus accrued and unpaid interest
thereon and, in certain cases, the redemption premium provided for in such Notes. The outstanding principal amount of the Senior Notes and Junior Notes as of December 31, 2003 was
£400 million and £133 million, respectively.

Apart
from the New Bonding Facility Agreement, the above mentioned documents have been entered into in connection with the Company's Senior and Junior Notes and do not themselves contain
facilities for new borrowings (although they do contain indemnities and similar obligations). The Security Trust and Intercreditor Deed also gives the right for the Security Trustee to demand that the
Company indemnify the Security Trustee for any costs and liabilities that arise as a result of entering into the documentation related to the Notes.

The
New Bonding Facility is a £50 million facility for the issue of bank guarantee letters of credit and performance bonds, available (until November 19, 2004)
to Marconi Bonding Limited ("MBL") on behalf of certain Group companies. The Company guarantees MBL's counter indemnity and other obligations under the New Bonding
Facility Agreement. In addition, the Company has certain direct liabilities under the New Bonding Facility Agreement, including certain specified arrangement and agency fees, transaction expenses,
enforcement costs, increased costs, a tax indemnity and other indemnities. Cash collateral of no less than 50% is required to be maintained under the New Bonding Facility Agreement.

As
of December 31, 2003, the fair value of the Company's guarantees that were issued or modified after December 31, 2002 was not material.

Asset repurchase obligations

An information technology outsourcing agreement was signed with Computer Sciences Corporation International Systems Management Inc. ("CSC") in
May 2003. Under the terms of the agreement, property, plant and equipment with an approximate book value of £17 million and 420 employees were transferred to CSC in exchange
for cash proceeds of £26 million. In addition to the transfer of employees and assets, the Company novated existing service and maintenance contracts to CSC.

The
IT service contract is for a period of ten years with a right to terminate without cause, but subject to a number of penalties, after two years and contains an obligation for the
Company to repurchase at fair value the assets with which CSC is providing the service at such time that the contract ceases. This obligation to purchase the assets cannot be quantified until such
time that notice to terminate has been given and a contract cessation date is known. Consequently, this obligation has not been quantified at December 31, 2003.

30

---

Product warranty reserves

The following information is provided with respect to product warranty reserves included in accounts payable and other liabilities:

|Description      |  | March 31,
2003 |  | Change to
opening
reserve |   | Additions/
(release) |  | Effect of
Exchange
rate
Changes |  | Utilization |   | December 31, 2003
|---------------- |  | -------------- |  | ------------------------- | - | -------------------- |  | ------------------------------- |  | ----------- | - | -----------------
|
|Warranty reserve |  | 43             |  | (1                        | ) | 19                   |  |                                |  | (22         | ) | 39               
|                 |  |                |  |                           |   |                      |  |                                 |  |             |   |                  

12.   Investment in affiliates

Easynet

The Company has disposed of its entire stake in Easynet Group plc ("Easynet"). The Company affected this disposal through a placing completed on July 4,
2003 of 36,135,948 ordinary shares in Easynet at a price of 112 pence per share together with a further placing completed on September 4, 2003 of 44,682,364 ordinary shares in Easynet at a
price of 127 pence per share. The Company no longer has an interest in Easynet nor has representatives on the board of Easynet.

Before
expenses the disposal on July 4, 2003, raised approximately £40.5 million while the disposal on September 4, 2003, raised approximately
£56.7 million

The
cash proceeds were paid into the MREA and were used to fund partial redemptions of the Junior Notes. See note 5.

13.   Discontinued operations

Discontinued operations related to NAA

The Company established a formal plan for the disposal of the NAA business during the three months ended December 31, 2003. On January 5, 2004 the
Company executed a definitive agreement for the sale of the NAA business for cash consideration of U.S.$240 million. Under the terms of the agreement, a subsidiary of Advanced Fibre
Communications, Inc. will acquire the NAA business. Completion of the transaction, which is subject to regulatory approval and other customary closing conditions, is expected to occur in the
first calendar quarter of 2004. The cash proceeds when received will be paid into the Mandatory Redemption Escrow Account, which will be used to fund a further mandatory redemption of the Company's
Junior and Senior Notes.

In
accordance with Emerging Issues Task Force No. 87-24 "Allocation of Interest to Discontinued Operations" interest expense of
approximately £9 million related to the portion of the Junior Notes that will be mandatorily redeemed as a result of the sale of the NAA business has been allocated to NAA.

The
results of operations, assets and liabilities and cash flows of NAA have been treated as discontinued for all periods reported.

31

---

Discontinued operations related to the mobile businesses

The Company established a formal plan for the disposal of the various businesses comprising the mobile segment during fiscal 2002 and on July 17, 2003,
completed the sale of its remaining non-core mobile communications subsidiary, Marconi Mobile Access SpA (also known as UMTS) to Finmeccanica SpA. Marconi agreed to capitalize the business
with approximately €6 million (approximately £4 million) prior to disposal.

Net
assets and liabilities of discontinued operations at December 31, 2003 and March 31, 2003 are comprised of the following:

|                                      |                                           | December 31,
2003         |     | March 31,
2003 |    
|------------------------------------- | ----------------------------------------- | ------------------------- | --- | -------------- | ---
|
|Assets:                               |                                           |                           |     |                |    
|                                      | Cash and cash equivalents                 |                           |    |                | 2  
|                                      | Accounts receivable                       |                           | 7   |                | 7  
|                                      | Prepaid expenses and other current assets |                           | 1   |                |   
|                                      | Inventory                                 |                           | 7   |                | 7  
|                                      | Tangible fixed assets                     |                           | 8   |                | 13 
|                                      | Goodwill                                  |                           | 65  |                | 73 
|                                      |                                           |                           |     |                |    
|                                      |                                           | Total assets              |     | 88             |    
|                                      |                                           |                           |     |                |    
|Liabilities:                          |                                           |                           |     |                |    
|                                      | Accounts payable                          |                           | (8  | )              | (15
|                                      | Accrued expenses and other liabilities    |                           | (11 | )              | (17
|                                      |                                           |                           |     |                |    
|                                      |                                           | Total current liabilities |     | (19            | )  
|                                      |                                           |                           |     |                |    
|Net assets of discontinued operations |                                           | 69                        |     | 70             |    
|                                      |                                           |                           |     |                |    

The
above assets and liabilities of discontinued operations include only those assets and liabilities that are being disposed of as part of the sale of the NAA business.

14.   Shareholders' equity

On September 9, 2003 the Company undertook a one for five share consolidation.

Holders
of ordinary shares in Marconi Corporation plc are entitled to one vote per share on matters to be voted on by the shareholders, and to receive dividends when and as declared by
the Board of Directors. Shareholders are entitled to certain pre-emptive rights but have no subscription, redemption or conversion privileges. The ordinary shares do not have cumulative
voting rights. The rights, preferences and privileges of holders of ordinary shares are subject to the rights of the holders of shares of any series of preferred shares issued or that may be issued in
the future.

As
a result of the Financial Restructuring, the Company is restricted from paying dividends under the terms of the new Senior and Junior notes. Accordingly, the Company's Board of
Directors does not expect to declare a dividend for the foreseeable future.

32

---

15.   Related party transactions

The table below provides details of the revenues and purchases that the Company and its subsidiaries had with equity investees, joint ventures and associates,
which are not consolidated, during the nine months ended December 31, 2003 and 2002. It also provides details of the receivable and payable balances with these equity investees, joint ventures
and associates as at December 31, 2003 and March 31, 2003. All transactions are in the ordinary course of business.

|                         |           | Nine months ended
December 31, 2003
|------------------------ | --------- | -----------------------------------
|
|Statement of operations: |           |                                    
|                         | Revenues  |                                    
|                         | Purchases |                                    

|                         |           | Nine months ended
December 31, 2002
|------------------------ | --------- | -----------------------------------
|
|Statement of operations: |           |                                    
|                         | Revenues  |                                    
|                         | Purchases |                                    

|               |                   | At December 31, 2003 |   
|-------------- | ----------------- | -------------------- | --
|
|Balance sheet: |                   |                      |   
|               | Trade receivables |                      | 21
|               | Trade payables    |                      | (1
|               | Other receivables |                      |  
|               | Other payables    |                      |  

|               |                   | At March 31, 2003 |     
|-------------- | ----------------- | ----------------- | ----
|
|Balance sheet: |                   |                   |     
|               | Trade receivables |                   | 26  
|               | Trade payables    |                   | (9  
|               | Other receivables |                   |    
|               | Other payables    |                   | (403

16.   Subsequent events

On January 5, 2004 the Company executed a definitive agreement for the sale of the NAA business for cash consideration of U.S.$240 million. Under
the terms of the agreement, a subsidiary of Advanced Fibre Communications, Inc. will acquire the NAA business. Completion of the transaction, which is subject to regulatory approval and other
customary closing conditions, is expected to occur in the first calendar quarter of 2004. The cash proceeds when received will be paid into the Mandatory Redemption Escrow Account, which will be used
to fund a further mandatory redemption of the Company's Junior and Senior Notes.

33

---

On
January 12, 2004, the Company completed the fifth partial redemption of its Junior Notes. All Junior Notes outstanding, including those then owned by Marconi Corporation plc,
were subject to this partial redemption. As a result, this further reduced the total principal amount outstanding to approximately U.S.$209 million (approximately
£117 million) of which approximately U.S.$18 million (approximately £10 million) was then owned by Marconi Corporation plc. The cash the Company received
as a result of its holding of Junior Notes at the time of the partial redemption has been transferred to the Mandatory Redemption Escrow Account to be applied to future redemptions.

On
February 2, 2004 the Company announced the cancellation of approximately U.S.$18 million (approximately £10 million) of its holding of its Junior
Notes.

On
February 11, 2004, the Company announced the sixth partial redemption of its Junior Notes, as a result of further releases of cash collateral held against performance bonding. All
Junior Notes repurchased by the Company prior to the redemption have been cancelled and therefore the total redemption amount of U.S.$34 million (approximately £19 million)
will be used to reduce the total principal outstanding to U.S.$157 million (approximately £86 million).

17.   Supplemental information for NARF & Non NARF segments

The indentures governing the Notes, which have been filed as exhibits on our Annual Report on Form 20-F on March 31, 2003, require that
the Company provides supplemental information with respect to Marconi Corporation plc and its Non-U.S. subsidiaries (as defined therein) and Marconi Communications, Inc. (the U.S.
parent) and its subsidiaries. The Company calls these segments Non NARF and North American Ring-Fence (NARF), respectively. The new segments the Company has adopted reflect the
classification of the Non NARF segment as equivalent to Marconi Corporation plc and its Non-U.S. subsidiaries and the
NARF segment as equivalent to the U.S. parent and its subsidiaries. These segments are comprised as follows:



In
accordance with the indenture requirements, consolidated statements of operations, consolidated balance sheets and consolidated cash flow statements, in respect of the NARF and Non
NARF segments, together with a Management's Discussion and Analysis of Financial Condition in respect of each segment, follows.

34

---

For
the purposes of this additional information, NARF continues to include the results of operations and cash flows of NAA. NARF and Non NARF are the only two segments of our Group and
can be reconciled to the Group total as follows:

|                                                               |  | Three months ended
December 31,
2003 |   | Nine months ended
December 31,
2003 |  
|-------------------------------------------------------------- |  | ------------------------------------ | - | ----------------------------------- | -
|
|Revenues                                                       |  |                                      |   |                                     |  
|NARF                                                           |  | 135                                  |   | 395                                 |  
|Non NARF                                                       |  | 273                                  |   | 769                                 |  
|                                                               |  |                                      |   |                                     |  
|Group (including NAA)                                          |  | 408                                  |   | 1,164                               |  
|                                                               |  |                                      |   |                                     |  
|Net Income                                                     |  |                                      |   |                                     |  
|NARF                                                           |  | 8                                    |   | 27                                  |  
|Non NARF                                                       |  | (125                                 | ) | 2,668                               |  
|                                                               |  |                                      |   |                                     |  
|Group (including NAA)                                          |  | (117                                 | ) | 2,695                               |  
|                                                               |  |                                      |   |                                     |  
|Net cash used in operating activities of continuing operations |  |                                      |   |                                     |  
|NARF                                                           |  | 3                                    |   | 7                                   |  
|Non NARF                                                       |  | (11                                  | ) | (88                                 | )
|                                                               |  |                                      |   |                                     |  
|Group (including NAA)                                          |  | (8                                   | ) | (81                                 | )
|                                                               |  |                                      |   |                                     |  

|                          |  | December 31,
2003 |  | September 30,
2003 |  | March 31,
2003 |  
|------------------------- |  | ----------------- |  | ------------------ |  | -------------- | -
|
|Net assets/(liabilities)  |  |                   |  |                    |  |                |  
|NARF                      |  | 221               |  | 235                |  | (348           | )
|Non NARF                  |  | 276               |  | 351                |  | (2,986         | )
|                          |  |                   |  |                    |  |                |  
|Segmental totalU.K. GAAP |  | 497               |  | 586                |  | (3,334         | )
|                          |  |                   |  |                    |  |                |  

35

---



CONDENSED NARF BALANCE SHEETS        (Unaudited)

|                                               |                                                                                                        | December 31,
2003 |        | September 30,
2003 |        | March 31, 2003 |       
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ----------------- | ------ | ------------------ | ------ | -------------- | ------
|
|ASSETS                                         |                                                                                                        |                   |        |                    |        |                |       
|Current assets                                 |                                                                                                        |                   |        |                    |        |                |       
|                                               | Cash and cash equivalents                                                                              |                   | 65     |                    | 75     |                | 24    
|                                               | Accounts receivable, net                                                                               |                   | 69     |                    | 80     |                | 81    
|                                               | Amounts due from Non NARF Group companies                                                              |                   | 126    |                    | 135    |                | 157   
|                                               | Inventories, net                                                                                       |                   | 43     |                    | 41     |                | 42    
|                                               | Prepaid expenses and other current assets                                                              |                   | 17     |                    | 14     |                | 21    
|                                               |                                                                                                        |                   |        |                    |        |                |       
|Total current assets                           |                                                                                                        | 320               |        | 345                |        | 325            |       
|Property, plant and equipment, net             |                                                                                                        | 87                |        | 98                 |        | 118            |       
|Goodwill                                       |                                                                                                        | 129               |        | 139                |        | 146            |       
|Loans due from Non NARF Group companies        |                                                                                                        | 174               |        | 186                |        | 83             |       
|                                               |                                                                                                        |                   |        |                    |        |                |       
|TOTAL ASSETS                                   |                                                                                                        | 710               |        | 768                |        | 672            |       
|                                               |                                                                                                        |                   |        |                    |        |                |       
|LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) |                                                                                                        |                   |        |                    |        |                |       
|Current liabilities                            |                                                                                                        |                   |        |                    |        |                |       
|                                               | Accounts payable                                                                                       |                   | 53     |                    | 68     |                | 64    
|                                               | Amounts due to Non NARF Group companies                                                                |                   | 133    |                    | 149    |                | 178   
|                                               | Accrued expenses and other current liabilities                                                         |                   | 135    |                    | 131    |                | 169   
|                                               |                                                                                                        |                   |        |                    |        |                |       
|Total current liabilities                      |                                                                                                        | 321               |        | 348                |        | 411            |       
|Long-term debt                                 |                                                                                                        | 5                 |        | 5                  |        | 6              |       
|Loans due to Non NARF Group companies          |                                                                                                        | 147               |        | 159                |        | 579            |       
|Other liabilities                              |                                                                                                        | 16                |        | 20                 |        | 23             |       
|                                               |                                                                                                        |                   |        |                    |        |                |       
|Total liabilities                              |                                                                                                        | 489               |        | 532                |        | 1,019          |       
|Commitments and contingencies (Note 11)        |                                                                                                        |                   |        |                    |        |                |       
|Minority interests                             |                                                                                                        |                  |        | 1                  |        | 1              |       
|Shareholders' equity                           |                                                                                                        |                   |        |                    |        |                |       
|Ordinary shares, £0.01 par value;              |                                                                                                        |                   |        |                    |        |                |       
|                                               | Authorized: 1,000 shares at September 30 and June 30, 2003                                             |                   |        |                    |        |                |       
|                                               | Issued and outstanding: 100 shares at September 30 and June 30, 2003 Warrants, issued and outstanding: |                   |        |                    |        |                |       
|                                               | Additional paid-in capital                                                                             |                   | 5,174  |                    | 5,174  |                | 4,618 
|                                               | Accumulated deficit                                                                                    |                   | (5,342 | )                  | (5,350 | )              | (5,365
|                                               | Capital reduction reserve                                                                              |                   | 4      |                    | 4      |                |      
|                                               | Accumulated other comprehensive loss                                                                   |                   | 385    |                    | 407    |                | 399   
|                                               |                                                                                                        |                   |        |                    |        |                |       
|Total shareholders' equity                     |                                                                                                        | 221               |        | 235                |        | (348           | )     
|                                               |                                                                                                        |                   |        |                    |        |                |       
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     |                                                                                                        | 710               |        | 768                |        | 672            |       
|                                               |                                                                                                        |                   |        |                    |        |                |       

36

---

CONDENSED NARF STATEMENTS OF OPERATIONS        (Unaudited)

|                                                      |                                     | Nine months
Ended
December 31,
2003 |     | Three months
ended
December 31,
2003
|----------------------------------------------------- | ----------------------------------- | ----------------------------------- | --- | ------------------------------------
|
|Revenue                                               |                                     | 395                                 |     | 135                                 
|Direct costs                                          |                                     | 252                                 |     | 86                                  
|                                                      |                                     |                                     |     |                                     
|                                                      | Gross margin                        |                                     | 143 |                                     
|Operating expenses:                                   |                                     |                                     |     |                                     
|                                                      | Selling, general and administrative |                                     | 47  |                                     
|                                                      | Research and development            |                                     | 43  |                                     
|                                                      | Business restructuring charges      |                                     | 9   |                                     
|                                                      | Other income                        |                                     | 10  |                                     
|                                                      |                                     |                                     |     |                                     
|Total operating expenses                              |                                     | 109                                 |     | 41                                  
|Operating profit                                      |                                     | 34                                  |     | 8                                   
|Other income/(expense):                               |                                     |                                     |     |                                     
|                                                      | Interest expense                    |                                     | (6  | )                                   
|                                                      |                                     |                                     |     |                                     
|Income from continuing operations before income taxes |                                     | 28                                  |     | 8                                   
|                                                      | Income tax benefit                  |                                     | (1  | )                                   
|                                                      |                                     |                                     |     |                                     
|Net income                                            |                                     | 27                                  |     | 8                                   
|                                                      |                                     |                                     |     |                                     

37

---



CONDENSED NARF STATEMENTS OF CASH FLOWS        (Unaudited)

|                                                                                                                       |                                        | Nine months
ended
December 31,
2003 |     | Three months
ended
December 31,
2003 |   
|---------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ----------------------------------- | --- | ------------------------------------ | --
|
|Cash flows from operating activities:                                                                                  |                                        |                                     |     |                                      |   
|Net income                                                                                                             |                                        | 27                                  |     | 8                                    |   
|Adjustments to reconcile net income to net cash provided by/(used in) operating activities from continuing operations: |                                        |                                     |     |                                      |   
|Stock compensation                                                                                                     |                                        | 1                                   |     | 1                                    |   
|Depreciation and amortization                                                                                          |                                        | 17                                  |     | 5                                    |   
|Provision for doubtful accounts                                                                                        |                                        | (4                                  | )   |                                     |   
|Changes in operating assets and liabilities, net of the effect of the extinguishment of liabilities:                   |                                        |                                     |     |                                      |   
|                                                                                                                       | Accounts receivable                    |                                     | 6   |                                      | (1
|                                                                                                                       | Inventories                            |                                     | (4  | )                                    | (5
|                                                                                                                       | Accounts payable                       |                                     | (25 | )                                    | (3
|                                                                                                                       | Movement in Group balances             |                                     | (13 | )                                    | (5
|                                                                                                                       | Accrued expenses and other liabilities |                                     | 2   |                                      | 3 
|                                                                                                                       |                                        |                                     |     |                                      |   
|Net cash used in operating activities from continuing operations                                                       |                                        | 7                                   |     | 3                                    |   
|                                                                                                                       |                                        |                                     |     |                                      |   
|Cash flow from/(used in) investing activities:                                                                         |                                        |                                     |     |                                      |   
|Purchases of property, plant and equipment                                                                             |                                        | (8                                  | )   | (4                                   | ) 
|Proceeds from the sale of property, plant and equipment                                                                |                                        | 11                                  |     | 2                                    |   
|                                                                                                                       |                                        |                                     |     |                                      |   
|Net cash provided by/(used in) investing activities                                                                    |                                        | 3                                   |     | (2                                   | ) 
|                                                                                                                       |                                        |                                     |     |                                      |   
|Cash flow from financing activities:                                                                                   |                                        |                                     |     |                                      |   
|Net cash provided by related parties                                                                                   |                                        | 42                                  |     |                                     |   
|                                                                                                                       |                                        |                                     |     |                                      |   
|Net cash provided by financing activities                                                                              |                                        | 42                                  |     |                                     |   
|                                                                                                                       |                                        |                                     |     |                                      |   
|Effects of exchange rate changes on cash and cash equivalents                                                          |                                        | (11                                 | )   | (11                                  | ) 
|                                                                                                                       |                                        |                                     |     |                                      |   
|Net increase/(decrease) in cash and cash equivalents                                                                   |                                        | 41                                  |     | (10                                  | ) 
|Cash and cash equivalents, beginning of period                                                                         |                                        | 24                                  |     | 75                                   |   
|                                                                                                                       |                                        |                                     |     |                                      |   
|Cash and cash equivalents, end of period                                                                               |                                        | 65                                  |     | 65                                   |   
|                                                                                                                       |                                        |                                     |     |                                      |   

38

---

CONDENSED NON NARF BALANCE SHEETS        (Unaudited)

|                                               |                                                                                                                                                                                                       | December 31,
2003 |       | September 30,
2003 |       | March 31,
2003 |       
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ----- | ------------------ | ----- | -------------- | ------
|
|ASSETS                                         |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|Current assets                                 |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|                                               | Cash and cash equivalents                                                                                                                                                                             |                   | 413   |                    | 487   |                | 168   
|                                               | Restricted cash                                                                                                                                                                                       |                   | 209   |                    | 210   |                | 964   
|                                               | Investment in securities                                                                                                                                                                              |                   | 2     |                    | 5     |                | 16    
|                                               | Accounts receivable, net                                                                                                                                                                              |                   | 246   |                    | 258   |                | 381   
|                                               | Amounts due from NARF Group Companies                                                                                                                                                                 |                   | 133   |                    | 149   |                | 178   
|                                               | Inventories, net                                                                                                                                                                                      |                   | 152   |                    | 161   |                | 192   
|                                               | Prepaid expenses and other current assets                                                                                                                                                             |                   | 106   |                    | 110   |                | 105   
|                                               | Assets of discontinued operations                                                                                                                                                                     |                   |      |                    |      |                | 4     
|                                               |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|Total current assets                           |                                                                                                                                                                                                       | 1,261             |       | 1,380              |       | 2,008          |       
|Property, plant and equipment, net             |                                                                                                                                                                                                       | 104               |       | 113                |       | 145            |       
|Investments in affiliates                      |                                                                                                                                                                                                       | 7                 |       | 18                 |       | 18             |       
|Goodwill                                       |                                                                                                                                                                                                       | 515               |       | 511                |       | 511            |       
|Intangibles, net                               |                                                                                                                                                                                                       | 67                |       | 78                 |       | 101            |       
|Loans due from NARF Group companies            |                                                                                                                                                                                                       | 147               |       | 159                |       | 579            |       
|Other non-current assets                       |                                                                                                                                                                                                       | 10                |       | 17                 |       | 75             |       
|                                               |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|TOTAL ASSETS                                   |                                                                                                                                                                                                       | 2,111             |       | 2,276              |       | 3,437          |       
|                                               |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|Current liabilities                            |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|                                               | Short-term debt                                                                                                                                                                                       |                   | 17    |                    | 17    |                | 2,195 
|                                               | Current maturities of long-term debt                                                                                                                                                                  |                   | 29    |                    | 3     |                | 2,191 
|                                               | Accounts payable                                                                                                                                                                                      |                   | 97    |                    | 90    |                | 99    
|                                               | Amounts due to Marconi plc and fellow subsidiaries                                                                                                                                                    |                   |      |                    |      |                | 403   
|                                               | Amounts due to NARF Group companies                                                                                                                                                                   |                   | 126   |                    | 135   |                | 157   
|                                               | Accrued expenses and other current liabilities                                                                                                                                                        |                   | 562   |                    | 568   |                | 929   
|                                               | Liabilities of discontinued operations                                                                                                                                                                |                   |      |                    |      |                | 16    
|                                               |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|Total current liabilities                      |                                                                                                                                                                                                       | 831               |       | 813                |       | 5,990          |       
|Long-term debt                                 |                                                                                                                                                                                                       | 499               |       | 609                |       | 24             |       
|Loans due from NARF Group companies            |                                                                                                                                                                                                       | 174               |       | 186                |       | 83             |       
|Deferred income taxes                          |                                                                                                                                                                                                       | 5                 |       | 5                  |       | 5              |       
|Other liabilities                              |                                                                                                                                                                                                       | 324               |       | 310                |       | 319            |       
|                                               |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|Total liabilities                              |                                                                                                                                                                                                       | 1,833             |       | 1,923              |       | 6,421          |       
|Commitments and contingencies                  |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|Minority interests                             |                                                                                                                                                                                                       | 2                 |       | 2                  |       | 2              |       
|Shareholders' equity                           |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|                                               | Ordinary shares, £0.25 par value;                                                                                                                                                                     |                   |       |                    |       |                |       
|                                               | Authorized: 3,134 shares at September 30 and June 30, 2003 and 6,000 shares at March 31, 2003; Issued and outstanding: 1,000 shares at September 30 and June 30, 2003, 2,866 shares at March 31, 2003 |                   | 50    |                    | 50    |                | 143   
|                                               | Warrants, issued and outstanding: 50 at June 30, 2003                                                                                                                                                 |                   | 12    |                    | 12    |                |      
|                                               | Additional paid-in capital                                                                                                                                                                            |                   | 1,070 |                    | 1,051 |                | 895   
|                                               | Accumulated deficit                                                                                                                                                                                   |                   | (503  | )                  | (378  | )              | (3,308
|                                               | Capital reduction reserve                                                                                                                                                                             |                   | 334   |                    | 334   |                |      
|                                               | Accumulated other comprehensive loss                                                                                                                                                                  |                   | (687  | )                  | (718  | )              | (716  
|                                               |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|Total shareholders' equity                     |                                                                                                                                                                                                       | 276               |       | 351                |       | (2,986         | )     
|                                               |                                                                                                                                                                                                       |                   |       |                    |       |                |       
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     |                                                                                                                                                                                                       | 2,111             |       | 2,276              |       | 3,437          |       
|                                               |                                                                                                                                                                                                       |                   |       |                    |       |                |       

39

---



CONDENSED NON NARF STATEMENTS OF OPERATIONS        (Unaudited)

|                                                             |                                               | Nine months
ended
December 31,
2003 |       | Three months
ended
December 31,
2003 |    
|------------------------------------------------------------ | --------------------------------------------- | ----------------------------------- | ----- | ------------------------------------ | ---
|
|Revenue                                                      |                                               | 769                                 |       | 273                                  |    
|Direct costs                                                 |                                               | 610                                 |       | 207                                  |    
|                                                             |                                               |                                     |       |                                      |    
|                                                             | Gross margin                                  |                                     | 159   |                                      | 66 
|Operating expenses:                                          |                                               |                                     |       |                                      |    
|                                                             | Selling, general and administrative           |                                     | 188   |                                      | 74 
|                                                             | Research and development                      |                                     | 113   |                                      | 35 
|                                                             | Amortization of intangibles                   |                                     | 33    |                                      | 10 
|                                                             | Business restructuring charges                |                                     | 90    |                                      | 28 
|                                                             | Other income                                  |                                     | (40   | )                                    | 6  
|                                                             |                                               |                                     |       |                                      |    
|Total operating expenses                                     |                                               | 384                                 |       | 153                                  |    
|Operating loss                                               |                                               | (225                                | )     | (87                                  | )  
|Other income/(expense):                                      |                                               |                                     |       |                                      |    
|                                                             | Gain on settlement of equity forward contract |                                     | 123   |                                      |   
|                                                             | Gain on extinguishment of liabilities         |                                     | 2,695 |                                      |   
|                                                             | Gain on sale of fixed assets and investments  |                                     | 14    |                                      |   
|                                                             | Impairment of investments                     |                                     | (3    | )                                    | (3 
|                                                             | Interest income                               |                                     | 20    |                                      | 5  
|                                                             | Interest expense                              |                                     | (85   | )                                    | (39
|                                                             |                                               |                                     |       |                                      |    
|Income/(loss) from continuing operations before income taxes |                                               | 2,539                               |       | (124                                 | )  
|                                                             | Income tax benefit                            |                                     | 17    |                                      |   
|                                                             | Gain on sale of affiliates                    |                                     | 94    |                                      |   
|                                                             | Equity in net loss of affiliates              |                                     | (2    | )                                    |   
|                                                             | Minority interest                             |                                     | (1    | )                                    | (1 
|                                                             |                                               |                                     |       |                                      |    
|Income/(loss) from continuing operations                     |                                               | 2,647                               |       | (125                                 | )  
|Discontinued operations:                                     |                                               |                                     |       |                                      |    
|                                                             | Gain on sale of discontinued operations, net  |                                     | 21    |                                      |   
|                                                             |                                               |                                     |       |                                      |    
|Net income/(loss)                                            |                                               | 2,668                               |       | (125                                 | )  
|                                                             |                                               |                                     |       |                                      |    

40

---

CONDENSED NON NARF STATEMENTS OF CASH FLOWS        (Unaudited)

|                                                                                                                              |                                        | Nine months
ended
December 31,
2003 |     | Three months
ended
December 31,
2003 |   
|----------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ----------------------------------- | --- | ------------------------------------ | --
|
|Cash flows from operating activities:                                                                                         |                                        |                                     |     |                                      |   
|Net income/(loss)                                                                                                             |                                        | 2,668                               |     | (125                                 | ) 
|Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities from continuing operations: |                                        |                                     |     |                                      |   
|Loss from discontinued operations                                                                                             |                                        |                                     |     |                                      |   
|Gain on sale of discontinued operations                                                                                       |                                        | (21                                 | )   |                                     |   
|Gain on settlement of equity forward contracts                                                                                |                                        | (123                                | )   |                                     |   
|Stock compensation                                                                                                            |                                        | 26                                  |     | 18                                   |   
|Gain on sale of fixed assets and investments                                                                                  |                                        | (14                                 | )   |                                     |   
|Gain on sale of affiliate                                                                                                     |                                        | (94                                 | )   |                                     |   
|Depreciation and amortization                                                                                                 |                                        | 76                                  |     | 23                                   |   
|Gain on extinguishment of liabilities                                                                                         |                                        | (2,695                              | )   |                                     |   
|Change in current and deferred taxes                                                                                          |                                        | (19                                 | )   | (1                                   | ) 
|Equity in net loss of affiliates                                                                                              |                                        |                                     |     |                                      |   
|Changes in operating assets and liabilities, net of the effect of the extinguishment of liabilities:                          |                                        |                                     |     |                                      |   
|                                                                                                                              | Accounts receivable                    |                                     | 127 |                                      | 11
|                                                                                                                              | Inventories                            |                                     | 43  |                                      | 11
|                                                                                                                              | Accounts payable                       |                                     | (42 | )                                    | 30
|                                                                                                                              | Movement in Group balances             |                                     | 13  |                                      | 5 
|                                                                                                                              | Accrued expenses and other liabilities |                                     | (33 | )                                    | 17
|                                                                                                                              |                                        |                                     |     |                                      |   
|Net cash used in operating activities from continuing operations                                                              |                                        | (88                                 | )   | (11                                  | ) 
|                                                                                                                              |                                        |                                     |     |                                      |   
|Cash flow from investing activities:                                                                                          |                                        |                                     |     |                                      |   
|Purchases of property, plant and equipment                                                                                    |                                        | (12                                 | )   | (4                                   | ) 
|Proceeds from the sale of property, plant and equipment                                                                       |                                        | 24                                  |     | 3                                    |   
|Net cash received for investments in joint ventures and associates                                                            |                                        | 23                                  |     |                                     |   
|Investment in NARF                                                                                                            |                                        | (42                                 | )   |                                     |   
|Purchase of interest in related parties                                                                                       |                                        | (6                                  | )   |                                     |   
|Disposal of interest in related parties                                                                                       |                                        | 108                                 |     | 4                                    |   
|                                                                                                                              |                                        |                                     |     |                                      |   
|Net cash provided by investing activities                                                                                     |                                        | 95                                  |     | 3                                    |   
|                                                                                                                              |                                        |                                     |     |                                      |   

41

---

|Cash flow (used in)/from financing activities:                              |  |      |   |     |  
|--------------------------------------------------------------------------- |  | ---- | - | --- | -
|Repayment of short-term borrowings, net                                     |  | (7   | ) | (3  | )
|Repayment of long-term borrowings, net                                      |  | (156 | ) | (50 | )
|Distribution to creditors under the scheme relating to debt and borrowings  |  | (330 | ) |    |  
|Restricted cash transferred from secured accounts                           |  | 755  |   | 1   |  
|                                                                            |  |      |   |     |  
|Net cash provided by/(used in) financing activities                         |  | 262  |   | (52 | )
|                                                                            |  |      |   |     |  
|Net cash used by discontinued operations                                    |  | 2    |   | 2   |  
|Effects of exchange rate changes on cash and cash equivalents               |  | (26  | ) | (16 | )
|                                                                            |  |      |   |     |  
|Net increase/(decrease) in cash and cash equivalents                        |  | 245  |   | (74 | )
|Cash and cash equivalents, beginning of period                              |  | 168  |   | 487 |  
|                                                                            |  |      |   |     |  
|Cash and cash equivalents, end of period                                    |  | 413  |   | 413 |  
|                                                                            |  |      |   |     |  
|Supplemental disclosure of cash flow activity:                              |  |      |   |     |  
|Cash payments for interest                                                  |  | (33  | ) | (14 | )
|Cash payments for income taxes                                              |  | (2   | ) |    |  
|Issuance of shares to extinguish liabilities                                |  | 562  |   |    |  
|Distribution of warrants to former plc shareholders                         |  | (12  | ) |    |  
|Gain on extinguishment of related party liabilities                         |  | 507  |   |    |  
|Issuance of new debt to extinguish liabilities                              |  | 690  |   |    |  
|Distribution to creditors under the scheme relating to operating activities |  | 10   |   |    |  

42

---



NARF & Non NARF supplemental information

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes and management
discussion and analysis of financial condition and results of operations appearing elsewhere in this Form 10-Q. For the purposes of this additional information, NARF continues to
include the results of operations and cash flows of NAA.

Results of operations

Revenues

Three months ended December 31, 2003 as compared to the three months ended September 30, 2003

Certain sales of our products (produced by our Non NARF businesses) are transacted through NARF businesses where economies of scale permit the NARF businesses to
process these transactions more efficiently.

NARF
revenues of £135m in the three months ended December 31, 2003, decreased £4 million or 3% as compared to revenues of
£139 million in the three months ended September 30, 2003, mainly due to the depreciation of the U.S. dollar in the quarter. Had the U.S. dollar remained stable in the
quarter, NARF revenues would have been around £10 million higher.

Total
BBRS revenues of £43 million in the three months ended December 31, 2003, decreased £10 million or 19% as compared to
£53 million in the three
months ended September 30, 2003. A slight decrease of £2 million in sales of BBRS services was compounded by a decline of £8 million in equipment sales.
Other than the impact of the weakening U.S. dollar, the decrease was attributable to lower equipment sales to the U.S. Federal Government, as expected, after the seasonally higher level of spend in
the previous quarter. This trend is in line with the U.S. Federal Government's typical seasonal purchasing pattern.

Total
OPP sales of £55 million in the three months ended December 31, 2003, increased by £1 million or 2% as compared to
£54 million in the three months ended September 30, 2003. Continued softness in central office spending by U.S. wireline operators led to a further reduction in sales of OPP
services but this was more than offset by an approximate 10% increase in OPP equipment sales resulting from the continued strong level of shipments to wireless operators in the U.S. and CALA during
the period.

NAA
sales of £34 million in the three months ended December 31, 2003 increased by £4 million or 13% as compared to
£30 million in the three months ended September 30, 2003, driven by ADSL upgrade programs (particularly at BellSouth).

Total
revenues recorded in NARF during the nine months ended December 31, 2003 were £395 million and included £7 million of products and
services from Non NARF businesses, which were sold through NARF entities.

Non
NARF revenues of £273 million in the three months ended December 31, 2003 increased £23 million or 9% as compared to
£250 million in the three months ended September 30, 2003, with the improvement mainly due to Access Network Equipment and Value Added Services.

Optical
Network revenues of £81 million in the three months ended December 31, 2003 were flat as compared to the previous quarter, as operators continued to
spend only to maintain the smooth running of existing infrastructure as opposed to new build projects. In particular, increased shipments of SDH equipment to Telecom Italia offset a reduction in the
level of sales of optical equipment to BT, mainly due to the timing of shipments.

43

---

Access
Networks revenues of £62 million in the three months ended December 31, 2003, increased £14 million or 29% as compared to
£48 million in the three months ended September 30, 2003. This increase was driven by continued strength in demand in the German market for fixed wireless access equipment to
mobile operators ahead of the December 31, 2003 deadline set by the National Regulator to achieve 25% 3G mobile coverage. We also experienced a slight seasonal increase in sales of narrowband
access products at the end of the financial year to a
number of German customers. The above more than offset a slight reduction in the level of sales of our multi-service access node, the Access Hub, from £10 million in the second
quarter to £9 million. While the volume of shipments to Telecom Italia increased significantly during this period, a high proportion of this was scheduled towards the end of the
quarter and in accordance with the contract terms will be recognized as sales during the fourth quarter.

Other
Network Equipment revenues of £17 million in the three months ended December 31, 2003 were flat as compared to the previous quarter. A decline in sales of
multi-media terminals and payphones were offset by additional sales from the phasing of long-term legacy infrastructure contracts in Hong Kong.

Overall
Networks Services revenues in Non NARF for the three months ended December 31, 2003 of £116 million increased by £8 million or 7% as
compared to £108 million in the three months ended September 30, 2003. This increase was primarily driven by growth in Value-Added Services, up £7 million
to £68 million, with IC&M stable. The growth in VAS resulted mainly from the higher level of sales under one specific long-term cable services contract in the U.K. as
well as an increase in wireless service sales under one specific contract in the Middle East. We also recorded modest growth in sales of Integrated Systems mainly driven by the completion of key
milestones in transport sector projects in Germany.

Gross margins

NARF gross margins of £49 million or 36.3% in the three months ended December 31, 2003, decreased from £54 million or
38.8% in the three months ended September 30, 2003 primarily due to the expected lower proportion of higher margin BBRS equipment. NARF gross margins are driven by the BBRS business, which
benefits from gross margins that are higher than the average for our group. BBRS forms an important part of our next generation product and service offering and is not a business that we are currently
managing for value and ultimately disposal.

Non
NARF gross margins of £66 million or 24.2% in the three months ended December 31, 2003, increased from £47 million or 18.8% in the three
months ended September 30, 2003. This improvement was mainly due to cost savings in our European supply chain and manufacturing operations, and increased volume in fixed access wireless
equipment, particularly in Germany.

Operating expenses

NARF operating expenses of £41 million or 30% of revenues in the three months ended December 31, 2003, increased by
£4 million or 11% as compared to
£37 million or 27% of revenues in the three months ended September 30, 2003. This increase is mainly due to a £5 million charge largely relating to an
increase in provision to settle the legal claim with Telcordia (as described on page 27).

Non
NARF operating expenses of £153 million or 56% of revenues in the three months ended December 31, 2003, increased £26 million as compared
to £127 million or 51% of revenues in the three months ended September 30, 2003. Business restructuring charges related to employee severance and site rationalization costs
of £28 million charged in the three months ended December 31, 2003, increased £18 million as compared to the £10 million charged in the
three months ended September 30, 2003. Stock compensation expense of £18 million charged in the three months ended December 31,

44

---

2003
increased £11 million as compared to the £7 million charged in the three months ended September 30, 2003.

Liquidity and capital resources

Operating activities

Net cash used in NARF operating activities of continuing operations was £3 million in the three months ended December 31, 2003. Income
from continuing operations of £8 million, stock compensation of £1 million and depreciation and amortization of £5 million were offset by
changes in operating assets and liabilities of £11 million. In the three months ended September 30, 2003, net cash of £1 million was used by NARF operating
activities of continuing operations. Income from continuing operations of £15 million and depreciation and amortization of £5 million were offset by changes in
operating assets and liabilities of £21 million. In the third quarter, operating profit was offset by the payment of £10 million of inter company creditors to Non
NARF. Working capital tied up in the increase in creditors was funded through cash collection from debtors. In the previous quarter, operating profitability before exceptional items was offset by
working capital movements due to the timing of creditor payments and reductions in advanced billings on legacy enterprise customer service contracts.

Net
cash used in Non NARF operating activities of continuing operations was £11 million in the three months ended December 31, 2003. Net loss from continuing
operations of £125 million and a change in current and deferred taxes of £1 million were
offset by stock compensation of £18 million, depreciation and amortization of £23 million and changes in operating assets and liabilities of
£74 million. Net cash used by Non NARF operating activities of continuing operations was higher at £25 million in the three months ended September 30,
2003, as compared with the three months ended December 31, 2003, mainly as a £94 million gain was recorded on the sale of our affiliate, Easynet, and a further
£14 million gain arising on the sale of investments in the three months ended September 30, 2003.

Investing activities

Net cash used by NARF investing activities was £2 million in the three months ended December 31, 2003. Purchases of property, plant and
equipment of £4 million were partially offset by proceeds from the sale of property, plant and equipment of £2 million. In the three months ended
September 30, 2003, net cash used by investing activities of £1 million was mainly due to the purchase of property, plant and equipment.

Net
cash provided by Non NARF investing activities was £3 million in the three months ended December 31, 2003. Disposals of interests in related parties of
£4 million were partially offset by purchases and proceeds of plant and equipment that net to £1 million. Net cash used by Non NARF investing activities was
£124 million in the three months ended September 30, 2003, and principally resulted from proceeds from the disposal of interests in related parties of
£104 million (primarily related to Easynet) and net cash received for investments in joint ventures and associates of £23 million.

Financing activities

NARF had no financing activities in the three months ended December 31, 2003 or in the three months ended September 30, 2003. In the three months
ended June 30, 2003, and prior to our Financial Restructuring, NARF received a cash capital contribution of £42 million from Non NARF.

Net
cash used by Non NARF financing activities was £52 million in the three months ended December 31, 2003. Repayment of long-term borrowings of
£50 million related mainly to interest paid

45

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on
the Junior and Senior Notes issued by Marconi Corporation plc and the 10% premium paid to redeem Junior Notes during the third quarter. Net cash used by Non NARF financing activities was
£98 million in the three months ended September 30, 2003, and was primarily related to interest payments on the Junior and Senior Notes and the 10% premium paid on Junior
Notes redeemed during the second quarter.

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis should be read in conjunction with the information under the caption "Risk Factors" below, our condensed consolidated financial
statements and related notes appearing elsewhere in this Form 10-Q and our audited consolidated financial statements and related notes contained in our Form 20-F
filed on June 27, 2003 with the Securities and Exchange Commission. Since the completion of the Financial Restructuring on May 19, 2003, Marconi Corporation plc has replaced Marconi plc
(now known as M (2003) plc) as the parent company of the Group and the Group now consists of Marconi Corporation plc and its subsidiaries. M (2003) plc is no longer a member of the Group.

Forward looking statements

This Quarterly Report on Form 10-Q, including this Management's Discussion and Analysis of Financial Condition and Results of Operations
includes forward looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 concerning our business, operations and financial performance and condition as well
as for our plans and objectives for our business operations and financial performance and conditions. You can identify these statements by words such as "aim", "anticipate", "assume", "believe",
"could", "due", "estimate", "expect", "goal", "intend", "may", "objective", "plan", "positioned", "should", "target", "will", "would", and other similar expressions which are predictions of or
indicate future events and future trends. These forward-looking statements involve known and unknown risks, uncertainties and other factors which are in some cases beyond our control and may cause our
actual results, performance and condition or achievements to differ materially from those expressed or implied by such forward-looking statements. Factors that may cause such differences include, but
are not limited to, the risks described below under the caption "Risk Factors".

Overview

We are a focused multi-regional provider of telecommunications equipment and services, which we supply to major telecommunications network operators, government
agencies and selected large enterprises worldwide.

There
were no significant changes in conditions in our main markets during the third quarter ended December 31, 2003 and we observed very similar trends to those reported in the
period ending September 30, 2003. Overall, customer capital expenditure on network equipment and services continued to run at a lower level than in the previous financial year but we are now
observing a trend towards year on year sales stability. Total revenues of £374 million in the three months ended December 31, 2003, declined 13% as compared to
£432 million for the three months ended December 31, 2002. This compares to the 33% year on year reduction we recorded in the first quarter and 22% reduction in the second
quarter on a similar basis. In our revenue outlook below, we indicate an expected further reduction in the year on year decline in the fourth quarter of the financial year and a return to relative
stability year on year in the first quarter of the next financial year. Our revenue guidance is based on Group revenue excluding our North American Access business, the sale of which we announced in
January and expect to complete by the end of March 2004, and does not include the impact of any future foreign exchange movements.

46

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On
a sequential basis, total revenues for the three months ended December 31, 2003 increased 4% as compared to £359 million for the three months ended
September 30, 2003. The three main drivers of growth during the period were:



Foreign
exchange translation and in particular the weakening of the US dollar impacted revenues for the three months ended December 31, 2003. On a sequential basis, the weaker US
dollar and stable Euro exchange rates led to an £11 million reduction of local currency revenues upon translation to sterling. Year on year, the appreciation in Euro exchange rates
more than offset the weakening US dollar and led to a £2 million favorable foreign exchange translation gain on revenues for the three months ended December 31, 2003.

All
of the above revenue figures represent continuing operations excluding our North American Access (NAA) business. We established a formal plan for the disposal of the NAA business
during the three months ended December 31, 2003. On January 5, 2004 the Company executed a definitive agreement for the sale of the NAA business for cash consideration of
U.S.$240 million. Under the terms of the agreement, a subsidiary of Advanced Fibre Communications, Inc. will acquire the NAA business. Completion of the transaction, which is subject to
regulatory approval and other customary closing conditions, is expected to occur in the first calendar quarter of 2004. The cash proceeds when received will be paid into the Mandatory Redemption
Escrow Account, which will be used to fund a further mandatory redemption of the Company's Junior and Senior Notes.

We
continued to make good progress in terms of our planned operational performance improvements during the third quarter.

Gross
margin of 25.8% of total revenues for the nine months ended December 31, 2003 increased from 24.7% of total revenues in the six months ended September 30, 2003 mainly
as a result of cost savings and increased efficiencies in our supply chain, particularly in Europe.

Operating
loss of £196 million, decreased £297 million in the nine months ended December 31, 2003 as compared to
£493 million in the nine months ended December 31, 2002. This improvement was driven primarily by cost reductions achieved across all areas of operating expenditure and
related mainly to headcount and associated costs, further streamlining of R&D programs, particularly in BBRS, to align future development to specific customer requirements and reduced level of spend
on third party professional fees.

We
continue to focus on cost reduction and cash generation initiatives in order to:



We
have continued to focus on our cash generation initiatives. At December 31, 2003, our total cash balance (including restricted cash) totaled £687 million, a
decrease of £469 million as compared with £1,156 million at March 31, 2003. We had significant cash outflows in the nine months ended December 31,
2003 of £340 million and £35 million related to the completion of our Financial

47

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Restructuring
on May 19, 2003 and the settlement with our ESOP derivative banks, respectively. The £340 million outflow represented a distribution of cash to scheme creditors
under our scheme of arrangement. In addition, we repaid approximately U.S.$250 million (or approximately £153 million) of our Junior Notes in the nine months ended
December 31, 2003 together with a £14 million redemption premium. Partially offsetting these cash outflows were £26 million of proceeds from our IT
outsourcing agreement with CSC that we completed in June 2003 and proceeds from the disposals of assets and investments of approximately £160 million.

In
parallel, we are undertaking a review of our longer-term capital structure to assess the optimum level and balance of cash and debt required to support our ongoing
business. We continue to manage our Outside Plant and Power business for value and will proceed with the disposal of this business if and when we believe that a disposal opportunity makes most
economic sense. In the meantime, this business unit continues to make a positive contribution to our operating results and cash flow.

Finally,
we are maintaining momentum with our next generation products and services. During the quarter we announced the first sale of our recently launched multi-haul DWDM
system to TeliaSonera (Scandinavia) and launched our new optical multi-service metro 16-64 platform which has already been shipped to a number of European second tier operators and is due
to start trials in the next few months with other larger operators in Europe, Asia Pacific and Latin America. We also announced an extension in scope and duration to our ongoing service support
contract with BT and more recently, in February 2004, announced frame contract renewals with Telecom Italia for next generation optical and broadband access equipment. Our continued focus on
specific R&D projects will bear further fruits in the coming weeks with the planned launch during March 2004 of our new AXR digital multipoint radio transmission platform, our new
Series 4 SDH ultra-compact product line, the second release of our BXR-48000 multi-service switch-router incorporating enhanced IP functionality and a new line-card for
our Access Hub, the VDSL combo-card, which allows the operator to carry a combination of video and voice services over the same multi-service access node.

Outlook

Revenues

We believe that our markets are beginning to stabilize although we expect to continue to see volatility in revenues from quarter to quarter as a result of various
regional demand drivers that we describe below.

This
outlook is based on our view of the expected like-for-like revenue profile of our operations excluding our North American Access business (NAA) and does not
take into consideration any impact of future foreign exchange movements.

Overall,
on a like-for-like basis, we expect fourth quarter sales to be flat to slightly up on the £374 million recorded in the third quarter
from continuing operations. We expect to benefit from good growth in the U.K. partly as a result of the scheduled phasing of sales to BT. This, however, will be partially offset by expected reductions
in sales in Germany following completion of the fixed wireless access build-outs by many of the German wireless operators, the Middle East and in the U.S. where we expect growth in BBRS
sales to the U.S. Federal Government to be offset by a decrease in sales of Outside Plant & Power equipment driven mainly by the slowdown in demand from our major wireless operator customers
described below.

While
it remains difficult to predict sales beyond the next quarter to a high degree of accuracy, our current view of the first quarter of the next financial year shows relative
stability year on year compared to the £342 million from continuing operations recorded in the first quarter of this financial year, in line with the seasonal pattern of customer
demand experienced in the current year.

48

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Operating performance

In light of the further increase in gross margin recorded in the third quarter and progress made to date on ongoing improvement initiatives, we expect that we
will continue to make steady progress in increasing gross margin as a percent of revenues in the remainder of the year.

We
expect the following factors to contribute to this improvement:



In
addition, we expect fourth quarter gross margin to benefit from a more favorable business mix, with an expected increase in higher margin BBRS equipment sales, the previously
disclosed scheduled high margin sale of software licenses to a US wireless operator and improved profitability from certain long-term service contracts.

In
the longer-term, we expect additional gross margin improvements to come from:



The
disposal of our North American Access business does not materially impact our targeted gross margin as gross margins in this business are in line with the Group average.

We
continue to make good progress in terms of operating cost reductions as a result of the foreign exchange translation benefits that we recorded during the third quarter and incremental
cost savings that we can now see coming through from headcount and associated cost reduction initiatives currently under way.

As
we improve our overall operating performance, we continue to focus on cash conversion and expect to generate positive operating cash in the final quarter of the year.

Business restructuring charges and cash costs

In order to more effectively complete our currently planned cost reduction actions, we will incur further business restructuring cash costs, a large proportion of
which will come through utilization of amounts currently provided with the balance to be expensed directly through the statement of operations.

At
December 31, 2003 total amounts provided for business restructuring amounted to £61 million. Approximately £26 million of the amount
provided relates to planned costs of severance payments particularly in Germany and Italy, where we have recently commenced redundancy programs and have identified and announced the names of employees
who will leave the business during the next three to six months. These redundancy programs replace our previously planned actions to implement reduced working hours in Germany and reduce our reliance
on government-sponsoredcassa integrazioneschemes in Italy. These programs are more costly to implement but represent a more permanent cost saving to
the Group.

The
balance of £35 million relates to other restructuring costs and mainly comprises the ongoing cost of leases on properties made vacant in the US, UK and Germany as
a result of our downsizing actions and other supplier liability commitments. We continue to seek early settlements of the onerous

49

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lease
commitments where this is possible and where the outcome of such a settlement offers economic benefit to the Group. The balance also includes provisions to cover costs to be incurred by the
administrator in the context of the Marconi Corporation plc financial restructuring scheme. We expect approximately half of the £35 million to be paid out before the end of the next
financial year and the balance to be ongoing cash costs over a number of years.

Taking
into account the planned utilization of amounts provided described above and additional cash costs that will be expensed directly to the statement of operations, we expect to
incur total cash costs of around £30 million during the fourth quarter of the financial year. During fiscal year 05, we now expect to incur further cash costs of approximately
£25 million to complete our
currently planned headcount and associated cost reductions and to cover our onerous lease and other supplier commitments.

In
addition to the above, as disclosed in Note 11 to the attached financial statements, we have agreed to pay U.S.$23.5 million (approximately
£13 million) to Telcordia in exchange for a license to its ATM patent portfolio and in full and final settlement of a previously disclosed lawsuit. We are in the process of
negotiating formal definitive agreements and currently expect to make a payment in the region of U.S.$14 million (approximately £8 million) before March 31, 2004 and
the remaining balance over the next three years.

Basis of presentation

Our condensed consolidated financial statements as at December 31, 2003 and for the three and nine months ended December 31, 2003 and 2002 included
in this report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The discussion and analysis below of our
consolidated results of operations and financial condition are based upon these financial statements.

The
U.S. Financial Accounting Standards Board standardStatement of Financial Accounting Standards No. 131Disclosure about
Segments of an Enterprise and Related Informationrequires us to determine and review our segments as reflected in the management information systems reports that our managers
use in making decisions. As we are an English company and we prepare our consolidated statutory financial statements under U.K. GAAP, our chief operating decision-maker evaluates our segment
performance using U.K. GAAP measures. Therefore, we have presented our discussion and analysis of segment revenues and operating (loss)/profit below based upon information prepared in accordance with
U.K. GAAP. In addition, our financial targets are determined in accordance with U.K. GAAP. Therefore, where we make reference to our previously disclosed financial targets, including our operating
cost run-rate, we are referring to U.K. GAAP measures.

In
connection with our Financial Restructuring, we adopted a new reporting structure that segments our businesses along geographical lines. Commencing with the quarter ended
September 30, 2003, we have reported the results of our businesses based in the U.S. (North American Ring-fence or "NARF") separately from the results of our businesses based in
Europe and the rest of the world other than the U.S. (Non-Ring-fenced businesses or "Non NARF") as follows:



50

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Our
new segmentation is connected with the contractual separation or "ring-fencing" of our U.S. based businesses that we implemented as part of our Financial Restructuring.

During
the periods to June 30, 2003, we had divided our continuing operations into three separate segments: Network Equipment, Network Services and Other as follows:



Commencing
with the quarter ended September 30, 2003, we reflected segment information on both the new (NARF and Non NARF) and old (Network Equipment, Network Services and Other)
bases, as it is impracticable for us to restate prior period information for the NARF and Non NARF segments, with the exception of revenue information.

In
certain specific cases prior to the completion of our Financial Restructuring and the implementation of the North American Ring Fence, we entered into contracts with customers for the
supply of equipment or services, which now form part of our Non Ring-fenced business but did
this through legal entities, which now form part of NARF (or vice versa). In our analysis of revenues by product area on page 61, we show these revenues in the product or service area from which the
revenues originated rather than through the legal entity which invoiced the final customer, and provide a detailed footnote to reconcile the product area sub-totals to the NARF and Non
NARF revenues as they are recorded in the NARF and Non NARF consolidated financial statements (see pages 33 to 41). During the nine months ended December 31, 2003, NARF products revenues direct
to customers and through Non NARF legal entities totalled £388 million and revenues of products or services from Non NARF businesses sold through NARF legal entities totaled
approximately £7 million bringing total NARF revenues to £395 million for the nine months ended December 31, 2003.

The
indentures governing the Notes issued in the Financial Restructuring require that we provide certain financial information with respect to each of (i) Marconi Corporation plc
and its Non-U.S. Subsidiaries (as defined in the Indentures) and (ii) Marconi Communications, Inc. (which is the holding company of our U.S. operations) and its Subsidiaries
(as defined). For these purposes the Non NARF segment is equivalent to Marconi Communications, Inc. and its Non-U.S. Subsidiaries and the NARF segment is equivalent to Marconi
Communications, Inc. and its subsidiaries. We have provided and will continue to provide additional financial information relative to our new segments, until we have completed the repayment in
full of the Junior Notes.

Discontinued operations

The Company established a formal plan for the disposal of the NAA business during the quarter ended December 31, 2003 and on January 5, 2004, we
announced the sale of our NAA business and are now in the final stages of obtaining clearance from the relevant authorities. The NAA business is disclosed as a discontinued operation under
U.S. GAAP in the attached financial statements. In the segmentation discussed below under U.K. GAAP, the NAA business is not a discontinued operations. Under U.K. GAAP we define
continuing operations excluding the NAA business as ongoing operations.

In
the nine months ended December 31, 2002, discontinued operations comprised our Italy based Strategic Communications subsidiary, the disposal of which was completed in
August 2002.

51

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Results of operationsConsolidated

The following table presents our results of operations for the three and nine months ended December 31, 2003 and 2002 prepared in accordance with U.S.
GAAP.

|                         |                                                              | Three months ended
December 31, |      | Nine months ended
December 31, |     
|------------------------ | ------------------------------------------------------------ | ------------------------------- | ---- | ------------------------------ | ----
|
|
|Revenues:                |                                                              |                                 |      |                                |     
|Equipment revenues       |                                                              | 233                             |      | 238                            |     
|Services revenues        |                                                              | 141                             |      | 195                            |     
|Other                    |                                                              |                                |      |                               |     
|                         |                                                              |                                 |      |                                |     
|                         |                                                              | 374                             |      | 433                            |     
|Direct costs             |                                                              | 270                             |      | 330                            |     
|                         |                                                              |                                 |      |                                |     
|Gross margin             |                                                              | 104                             |      | 103                            |     
|Operating expenses:      |                                                              |                                 |      |                                |     
|                         | Selling, general and administrative                          |                                 | 84   |                                | 86  
|                         | Research and development                                     |                                 | 45   |                                | 61  
|                         | Amortization of intangibles                                  |                                 | 10   |                                | 11  
|                         | Business restructuring charges                               |                                 | 32   |                                | 42  
|                         | Loss/(gain) on sale of long-lived assets                     |                                 |     |                                | 9   
|                         | Impairment of long-lived assets                              |                                 |     |                                | 7   
|                         | Other expense/(income)                                       |                                 | 4    |                                | (4  
|                         |                                                              |                                 |      |                                |     
|Total operating expenses |                                                              | 175                             |      | 212                            |     
|                         |                                                              |                                 |      |                                |     
|Operating loss           |                                                              | (71                             | )    | (109                           | )   
|Other income/(expense):  |                                                              |                                 |      |                                |     
|                         | Gain on settlement of equity forward contract                |                                 |     |                                |    
|                         | Gain on extinguishment of liabilities                        |                                 |     |                                |    
|                         | Provision for related party receivable                       |                                 |     |                                | (18 
|                         | Gain/(loss) on sale of investments                           |                                 |     |                                | 2   
|                         | Impairment of investments                                    |                                 | (3   | )                              | (1  
|                         | Interest income                                              |                                 | 4    |                                | 8   
|                         | Interest expense                                             |                                 | (46  | )                              | (35 
|                         |                                                              |                                 |      |                                |     
|                         | (Loss)/income from continuing operations before income taxes |                                 | (116 | )                              | (153
|Income tax benefit       |                                                              |                                |      | 3                              |     
|                         | (Loss)/Gain on sale of affiliates                            |                                 |     |                                | (2  
|                         | Equity in net loss of affiliates                             |                                 |     |                                |    
|                         | Minority interest                                            |                                 | (1   | )                              |    
|                         |                                                              |                                 |      |                                |     
|                         | (Loss)/income from continuing operations.                    |                                 | (117 | )                              | (152
|                         | (Loss)/Gain on sale of discontinued operations, net          |                                 |     |                                | (4  
|                         | Loss from discontinued operations                            |                                 |     |                                | (11 
|                         |                                                              |                                 |      |                                |     
|Net (loss)/income        |                                                              | (117                            | )    | (167                           | )   
|                         |                                                              |                                 |      |                                |     

Foreign Exchange Impact

We have significant translation exposure to foreign exchange movements as approximately 32% of our sales are derived in U.S. dollars and 28% in Euros. During the
nine months ended December 31, 2003, we have seen the nine month U.S. dollar rate weaken over the period by 8% and the nine month

52

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Euro
rate over the period strengthen by 9%. The movement in the U.S. dollar was particularly significant in the three months ended December 31, 2003 as the average rate for the quarter weakened
by 8% on the previous quarter. In contrast, the Euro average rate remained stable.

The
impact of these rate changes on our results is set out below.

|                   |  | Three months ended
December 31, 2003 |   | Nine months ended
December 31, 2003 |  
|------------------ |  | ------------------------------------ | - | ----------------------------------- | -
|
|Revenues           |  | (11                                  | ) | 2                                   |  
|Gross margin       |  | (3                                   | ) | (2                                  | )
|Operating expenses |  | 3                                    |   | (4                                  | )
|                   |  |                                      |   |                                     |  
|Operating profit   |  |                                     |   | (6                                  | )
|                   |  |                                      |   |                                     |  

In
the three months ended December 31, 2003 as compared to the three months ended September 30, 2003 the Euro remained stable but the impact of U.S. dollar exchange rate
movements was to decrease revenues by approximately £11 million. Gross margin and operating costs were decreased by approximately £3 million each, leading to the
adjusted operating profit (before exceptional items) being materially unchanged.

In
the nine months ended December 31, 2003 as compared to the nine months ended December 31, 2002 the net impact of the cumulative exchange rate movements was to increase
revenues by approximately £2 million, as the strengthening Euro offset the weakening U.S. dollar. As the U.S. businesses have higher average margins than Euro and Pound Sterling
businesses, the impact was to depress the gross margin by approximately £2 million. Euro and Pound Sterling businesses also have higher levels of operating expenses than U.S.
businesses hence operating costs were approximately £4 million higher due to the strengthening Euro. This led to the adjusted operating profit (before exceptional items) being
decreased by approximately £6 million.

Revenues

The following table sets forth our revenues by geographical region of destination for the three and nine months ended December 31, 2003 and 2002 as
reported under U.S. GAAP:

|                                            |  | Three months ended
December 31, |  | Nine months ended
December 31,
|------------------------------------------- |  | ------------------------------- |  | ------------------------------
|
|
|United Kingdom                              |  | 101                             |  | 27.0                          
|Italy                                       |  | 38                              |  | 10.1                          
|Germany                                     |  | 58                              |  | 15.5                          
|Other                                       |  | 44                              |  | 11.8                          
|                                            |  |                                 |  |                               
|Total Europe, Middle East and Africa (EMEA) |  | 241                             |  | 64.4                          
|North America                               |  | 88                              |  | 23.5                          
|Central and Latin America (CALA)            |  | 13                              |  | 3.5                           
|Asia-Pacific (APAC)                         |  | 32                              |  | 8.6                           
|Other                                       |  |                                |  |                              
|                                            |  |                                 |  |                               
|Total revenues                              |  | 374                             |  | 100                           
|                                            |  |                                 |  |                               

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Whilst
showing some signs of stabilizing, capital expenditure by our main incumbent telecommunications customers continued to run at a considerably lower rate than in fiscal 2003,
leading to sales declines across all major geographic regions in both the three months and nine months ended December 31, 2003 as compared to the three and nine months ended December 31,
2002. Market conditions remain difficult and price pressure exists in all regions. Conditions remain most challenging in the APAC and CALA regions where local manufacturers are pushing prices down,
which has had the effect of reducing revenues in these regions.

Three months ended December 31, 2003 compared with three months ended December 31, 2002

Of the overall reduction in revenues during the period, 78% occurred in the Europe, Middle East and Africa region (EMEA). The £46 million or
16% decrease in sales in EMEA was largely
driven by a reduced level of sales in the U.K. and the Middle East, which was partially offset by increased sales in Germany.

Revenues
in the U.K. in the three months ended December 31, 2003 decreased by 17% compared to sales in the three months ended December 31, 2002. Of this
£21 million decrease, £20 million related to reduced sales to BT as our largest customer has focused its reduced capital expenditure on the accelerated deployment
of its broadband access network and supporting technologies resulting in greater reductions in spend in other areas, particularly Optical Networks. We were not a supplier of broadband access equipment
as part of BT's initial deployment but we expect to benefit in the future from our previously disclosed three-year frame contract for the supply of our next generation multi-service access
node, the Access Hub. We expect to begin making shipments of our Access Hub into BT's network early in the next fiscal year. Sales of Network Services in the U.K. remained relatively stable overall
during the period. However, there was a decline in Installation & Commissioning due to the reduction in equipment sales, which was offset by an increase in Value Added Services resulting from
higher sales of cable services. Sales of Voice Systems were down year on year due to the higher level of sales associated with a software upgrade carried out during the three months ended
December 31, 2002.

In
Italy, revenues increased by 9% as compared to revenues in the three months ended December 31, 2002. Sales to Telecom Italia (TI) were up during the period as a result of
increased shipments of our SDH equipment together with slightly increased sales of our Access Hub product to Fastweb under the new contract for ADSL that was previously announced. This was partially
offset by decreases in sales to other second tier operators, particularly as a result of phasing network build projects with Wind. In the three months ended December 31, 2003, sales to these
customers were focused on infill and activities to increase the efficiency of the existing infrastructure, which are typically not of the same magnitude as the initial network builds which occurred in
the three months ended December 31, 2002.

Revenues
in Germany increased by 5% as a result of strong demand from wireless operators, notably E-Plus, O2 and Vodafone for fixed wireless access equipment, as
these customers continued to roll out 3G mobile networks in order to reach the 25% mobile coverage threshold prior to the December 31, 2003 deadline set by the national regulator.

More
than half of the 41% sales decline in other countries in the EMEA region occurred in the Middle East. This is due to the completion of a key phase of a long-term service
contract in Saudi Arabia in the three month period ended December 31, 2002 and a reduced level of sales of wireless consultancy services. A further £4 million of the decrease
in sales arose as a result of the disposal of our South African legacy operations completed in December 2002. The balance related to further reductions in capital expenditure by other European
second tier operators.

In
ongoing operations in North America, the 15% decrease related mainly to the disposal of our U.S. based SMS subsidiary, which was completed in December 2002. A reduction in
revenues of Value

54

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Added
Services (wireless) was partially offset by an increase in revenues of Outside Plant and Power (OPP) equipment as a result of increased spending by U.S. wireless operators. Sales of Broadband
Routing and Switching (BBRS) services declined due to the completion of a key phase of a major airport infrastructure project and OPP services revenues declined due to reductions in central office
spending by U.S. wireline operators.

Although
revenues in Central and Latin America (CALA) were flat, customer spending in the region continues to remain at very low levels as a result of the general downturn in economic
conditions. Current demand is coming from the wireless rather than fixed wireline operators and is focused mainly on Optical Networks and Outside Plant and Power equipment.

The
increase in sales in Asia Pacific (APAC) was driven primarily by a higher level of Optical Network sales in India under a new frame contract signed during the current fiscal year, as
well as increased sales in China. Direct sales of Optical Network equipment to Telstra in Australia increased, but were slightly more than offset by the decrease in indirect sales through Siemens as
this distribution agreement nears expiry.

Nine months ended December 31, 2003 compared with nine months ended December 31, 2002

The trends in the geographic regions were broadly similar to those described above in respect of the comparison for the three month periods ended
December 31, 2002 and 2003, with EMEA accounting for 53% of the reduction in revenues between periods.

Within
EMEA, reduced revenues in the U.K., Middle East and Italy were partially offset by growth in Germany. In the U.K., revenues decreased by 20% compared with the nine months ended
December 31, 2002, mainly as a result of a reduction in sales of optical networking equipment to BT and the impact of the sale of a software upgrade in the Voice Systems part of our Access
Networks business in the nine months ended December 31, 2002, which was not repeated in the nine months ended December 31, 2003. In Italy, revenues were down 3% compared to the nine
months ended December 31, 2002, a result of phasing of network build projects with Omnitel and Wind. In the nine months ended December 31, 2003, sales to these customers were focused on
infill and activities to increase the efficiency of the existing infrastructure, which are typically not of the same magnitude as the initial network builds which occurred in the nine months ended
December 31, 2002. In Germany, revenues increased 7% as compared to the nine months ended December 31, 2002 as a result of the increased demand for fixed wireless access equipment in the
three months ended December 31, 2003 for the reasons described above. Revenues in other countries of the EMEA region were down 43% compared to the nine months ended December 31, 2002. As
described above, the main factor behind this decline in revenues was the reduced level of sales of Network Services in the Middle East.

Revenues
in North America for continuing operations reduced by 22% compared to the nine months ended December 31, 2002. The main cause of the decline was the disposal of our
U.S.-based SMS subsidiary, which was completed in December 2002 and the reduction in sales of wireless software and services in North America, as described above. There was also a reduction in
sales of BBRS services due to the completion of a key phase of a significant airport services contract in the previous year, which was compounded by a decline in OPP services revenues due to continued
softness in central office spending by U.S. wireline operators.

In
CALA, revenues decreased by 29% compared to the nine months ended December 31, 2002 primarily as a result of the very low level of sales recorded in the three months ended
June 30, 2003 as political, regulatory and economic issues led network operators to restrict capital expenditure.

In
APAC, revenues decreased by 32% from the nine months ended December 31, 2002. Major factors contributing to this trend include:



55

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Trading
conditions also remain difficult for BBRS in APAC. In particular, the installed Service Provider and Enterprise customer base in Japan has seen little new deployments or upgrades
of BBRS equipment during the nine months ended December 31, 2003. Revenues in Australia were also lower than in the previous year when we were supplying optical network equipment to second tier
operator, IP1, which has since gone into receivership. This has also caused a slowdown in capital expenditure by the main incumbent operator, Telstra pending the outcome of its now successful bid to
purchase the assets of IP1 from the receiver.

Other
included now disposed businesses, UMTS and Tetra.

Book to Bill ratio

|                        |  | Three months ended
December 31, |  | Nine months ended
December 31,
|----------------------- |  | ------------------------------- |  | ------------------------------
|
|
|Total Network Equipment |  | 0.90                            |  | 0.99                          
|Total Network Services  |  | 1.18                            |  | 0.78                          
|                        |  |                                 |  |                               
|Group (excluding NAA)   |  | 1.00                            |  | 0.89                          
|                        |  |                                 |  |                               

Book-to-bill
is the ratio of order intake divided by the level of sales in any given period. Management use this as a key indicator of future
short-term sales performance in the Network Equipment business and the Group seeks to maintain this ratio above 1.00 over any 12-month period.
Book-to-bill in Network Equipment decreased to 0.90 from 0.99 in the three months ended December 31, 2003 and 2002 respectively mainly as a result of lower levels of
orders received in Optical Networks and OPP. The decrease in Optical Networks is mainly due to BT continuing to utilize more capacity in the existing
network without making corresponding investments in additional capacity. The decline in OPP reflects the slowdown in orders as our main wireless operators near completion of the planned network
builds, which have positively impacted sales in recent quarters.

This
ratio is less meaningful in Network Services given the long-term contract nature of this business where the full value of a service contract, which can typically be
worth tens of millions of £sterling, is booked as an order at the point of firm contract signature and then recognized as sales over the life of the contract, which can typically be over a
period of 2 to 5 years. A consolidated support order from BT and a further order from TollCollect in Germany relating to provision of spare parts, booked in the three months ended
December 31, 2003, were the main drivers in increasing the book-to-bill ratio to 1.18 in Network Services compared to 0.78 in the three months ended December 31,
2002.

Gross margin

Three months ended December 31, 2003 as compared to the three months ended December 31, 2002

Gross margin from continuing operations of £104 million or 27.8% in the three months ended December 31, 2003 has improved as compared to
£103 million or 23.8% in the three months ended December 31, 2002.

56

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In
Network Equipment, the improvement was largely driven by the achievement of substantial cost savings in our supply chain and manufacturing operations in Europe and North America
through rationalisation and procurement initiatives described above, which more than offset the price reductions under existing frame contracts, adverse impact of exchange rates and the overall
decrease in sales volumes.

In
Network Services, significant cost savings were achieved largely through reductions in headcount and other overhead costs. The reduction in volumes from lower margin service contracts
in the Middle East in the three months ended December 31, 2003 compared with the three months ended December 31, 2002 has also contributed to improved margins.

Nine months ended December 31, 2003 as compared to the nine months ended December 31, 2002

Cost reductions in both Network Equipment and Network Services, were more than sufficient to offset the lower sales volumes and continued pricing pressure
described below. In Network Equipment, gross margin increased due to cost savings achieved through rationalization and procurement initiatives in our European and North American supply chain and
manufacturing operations. In Network Services, the improvement was largely achieved through headcount reductions as we continued to rightsize our services organization.

Operating expenses

Operating cost reduction has remained a key focus of our strategy during the three and nine months ended December 31, 2003 as we continue to make progress
towards reducing our annualized operating cost run-rate. By December 31, 2003, the run-rate for the total Network Equipment and Network Services segments had been
reduced as compared to the run-rate at March 31, 2003.

Savings
were made largely through headcount and other associated cost reductions. We employed a total workforce of 13,023, including 250 employees within NAA, at December 31,
2003, compared to 14,134 employees at September 30, 2003. Of this reduction of approximately 1,100 employees, approximately 320 were transferred to Elcoteq following the outsourcing of our
manufacturing facility in Offenburg.

Selling, general and administrative expenses

Selling, general and administrative expenses of £84 million or 22.5% of revenue in the three months ended December 31, 2003, decreased
£2 million or 2.3% as compared to the three months ended December 31, 2002. Selling, general and administrative expenses of £227 million or 21.1% of
revenue in the nine months ended December 31, 2003, decreased £35 million or 13.4% as compared to the nine months ended December 31, 2002.

We
have achieved significant savings through a program of focused headcount reductions, organizational consolidation and rationalization, site rationalization (including closure of sales
offices worldwide and relocation of our U.K. head office) and reduced spend on professional fees incurred in the normal course of business. The headcount reductions announced in the U.K., Germany and
Italy have also started to reduce costs in the three months ended December 31, 2003.

Research and development

R&D expenditures of £45 million or 12.0% of revenues in the three months ended December 31, 2003, decreased
£16 million or 26.2% as compared to £61 million for the three months ended December 31, 2002. £7 million of this reduction resulted from
the disposal of non-core businesses. R&D expenditures of £145 million or 13.5% of revenue in the nine months ended December 31, 2003,

57

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decreased
£75 million or 34.1% as compared to £220 million or 15.7% of revenue in the nine months ended December 31, 2002.

We
achieved cost savings mainly through headcount reductions and initiatives to significantly rationalize, consolidate and close research and development centers around the world. Other
factors contributing to the overall reduction in R&D expenditure included lower levels of spend on third party sub contractors and materials and a reduced level of depreciation due to lower levels of
capital expenditure and the write down of development and test models.

We
have continued to focus the majority of our R&D investment in three main product areas: Optical Networks, Access Networks and BBRS and in aggregate, spend in these three areas
accounted for approximately three quarters of our R&D expenditure during the three months ended December 31, 2003.

Optical
Networks ("ON") accounted for approximately 42% of R&D spend in the three months ended December 31, 2003 as compared to approximately 43% in the three months ended
December 31, 2002. The percentages for the three and nine months ended December 31, 2003 are similar. Recent investment in Optical Networks has led to the launch of our new
multi-haul DWDM (Dense Wavelength Division Multiplexing) system which converges 3 existing product lines into one single, cost effective platform and significantly reduces the total cost
of ownership for our customers. We announced the first sale of this new platform to TeliaSonera (Scandinavia) during the third quarter. In addition, in November 2003, we launched our new
optical multi-service 16-64 platform for metropolitan network solutions which we have already shipped to a number of second-tier operators in Germany and Eastern Europe. While,
in March 2004, we plan to launch our new cost-reduced Series 4 ultra-compact SDH product line.

Access
Networks accounted for approximately 23% of R&D spend in the three months ended December 31, 2003 compared with approximately 18% in three months ended December 31,
2002. The percentages for the three and nine months ended December 31, 2003 are similar. We continue to focus our investment in Access Networks on three main product lines:



BBRS
accounted for approximately 17% of R&D spend in the three months ended December 31, 2003 as compared with approximately 23% in the three months ended December 31,
2002. The percentages for the three and nine months ended December 31, 2003 are similar. In BBRS, we have achieved significant cost savings mainly as a result of headcount reductions and
realignment of core programs to meet specific customer demand. Almost half of the spend in the nine months ended December 31, 2003 related to further enhancements to our BXR-48000.
The second release of this multi-service switch-router is due to be released in March 2004 and will incorporate enhanced IP functionality and improved IP/ATM operability. Other programs are
focused on adding Gigabit Ethernet and channelized interfaces to the smaller switch line, the release of Virtual Presence (Vipr), and maintenance activities throughout the product portfolio. We
continue to seek to leverage our own R&D spend in this field by establishing partnerships in order to complement our own technology initiatives.

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Amortization of intangibles

Intangible asset amortization expense of £10 million or 2.7% of revenues and £33 million or 3.1% of revenues in the three
and nine months ended December 31, 2003, respectively, were flat as compared with intangible assets amortization expense of £11 million or 2.5% of revenues and
£33 million or 2.4% in the three and nine months ended December 31, 2002, respectively.

Business restructuring charges

Business restructuring charges of £98 million or 9.1% of revenues in the nine months ended December 31, 2003, decreased
£73 million or 42.7% as compared to £171 million or 12.2% of revenues in the nine months ended December 31, 2002. Of the £98 million
amount recorded in the nine months ended December 31, 2003, £48 million related to employee severance, £8 million to site rationalization and
£42 million to advisor fees incurred and accrued to complete our Financial Restructuring. Of the £171 million amount recorded in the nine months ended
December 31, 2002, £85 million related to employee severance, £34 million to site rationalization and £52 million to advisor fees
incurred and accrued to complete our Financial Restructuring.

The
following table summarizes the activity relative to business restructuring charges reflected as charges to operating expenses in the nine months ended December 31, 2003 and
the balances remaining in accrued expenses and other liabilities at December 31, 2003.

|                                                |  | Balance at
March 31,
2003 |  | Charged |  | Net cash
Payments |   | Non cash
Movement |   | Balance at
December 31,
2003
|----------------------------------------------- |  | ------------------------- |  | ------- |  | ----------------- | - | ----------------- | - | ----------------------------
|
|                                                |  |                           |  |         |  |                   |   |                   |   |                             
|Employee severance                              |  | 10                        |  | 48      |  | (32               | ) |                  |   | 26                          
|Site rationalization                            |  | 36                        |  | 8       |  | (17               | ) | (1                | ) | 26                          
|Contractual commitments and other restructuring |  | 3                         |  |        |  | (2                | ) |                  |   | 1                           
|Advisor fees                                    |  | 1                         |  | 42      |  | (33               | ) | (2                | ) | 8                           
|                                                |  |                           |  |         |  |                   |   |                   |   |                             
|Total                                           |  | 50                        |  | 98      |  | (84               | ) | (3                | ) | 61                          
|                                                |  |                           |  |         |  |                   |   |                   |   |                             

Employee severance

As
a consequence of our objective to reduce our annual operating cost base, we recorded a charge of £48 million during the nine months ended December 31, 2003
associated with redundancy payments for approximately 1,200 employees. We expect that the majority of the remaining balance of £26 million at December 31, 2003, which covers
approximately 400 further employees, will be paid out in fiscal 2004.

In
the nine months ended December 31, 2002, we recorded a charge of £105 million to reflect the charges associated with voluntary redundancy payments for
approximately 5,000 employees, while cash payments of £134 million were made in the same period.

Site rationalization

The charge of £8 million in respect of site rationalization in the nine months ended December 31, 2003 represents additional costs
associated with closing and consolidating various sites around the world as part of the business restructuring. Cash payments of £17 million were made in respect of these site
closures and consolidations.

59

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In
the nine months ended December 31, 2002, we recorded a charge of £36 million and made cash payments of £40 million in respect of these
site closures and consolidations.

Contractual commitments and other restructuring

We
made cash payments of £2 million in respect of contractual commitments and other restructuring in the nine months ended December 31, 2003. The balance of
£1 million at December 31, 2003 represents other miscellaneous costs associated with the restructuring program.

In
the nine months ended December 31, 2002 we recorded cash payments of £Nil in respect of these other restructuring associated costs.

Advisor fees

The
charge of £42 million in respect of advisor fees for the nine months ended December 31, 2003 represents charges from our external advisors with respect to
services rendered in the period related to the Financial Restructuring. Of the £42 million charge in the period, £13 million relates to costs, which were prepaid
at March 31, 2003. In addition, we now expects to incur approximately £36 million of cash costs during fiscal 2004 in relation to the Financial Restructuring,
£33 million of which was paid out during the nine months ended December 31, 2003.

In
the nine months ended December 31, 2002, we recorded a charge of £37 million and made cash payments of £37 million in respect of advisor
fees.

Gain/loss on sale of long-lived assets

We recorded £nil gains during the three and nine months ended December 31, 2003 on the sale of long-lived assets. During the three
and nine months ended December 31, 2002, we recorded a gain of £9 million and a loss of £5 million respectively.

Impairment of long-lived assets

We recorded £nil in the three and nine months ended December 31, 2003 and £7 million and £59 million in
the three and nine months ended December 31, 2002.

Other income/(expense)

During the three and nine months ended December 31, 2003, we recorded income of £4 million and a charge of
£30 million, respectively and in the three and nine months ended December 31, 2002, we recorded a charge of £4 million and income of
£4 million, respectively in other income/expense related primarily to foreign currency translation movements, patents and royalty fees.

Gain on equity forward contract

On May 19, 2003, we paid £35 million in cash to the ESOP derivative banks to settle our liability to them and recognized a gain of
£123 million on the release of this liability.

Gain on extinguishment of liabilities

During the nine months ended December 31, 2003, we recorded a gain of £2,695 million on the extinguishment of liabilities related to our
Financial Restructuring as compared with £nil in the nine months ended December 31, 2002. This gain represents the excess of approximately £4.8 billion of
creditors claims extinguished over the fair value, less issuance costs, of the cash, new debt, and new equity issued to those creditors. The total gain was allocated to the statement of operations to
the extent that it related to the extinguishment of third party liabilities.

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Provision for related party receivable

We recorded a provision of £204 million in the nine months ended December 31, 2002 related to amounts due to us from Marconi plc (now
known as M (2003) plc), which we did not consider to be recoverable due to the terms of our Financial Restructuring.

Gain/(loss) on sale of investments

The gain of £14 million in the nine months ended December 31, 2003 related primarily to gains arising on the sale of our investments in
Bookham (approximately £8 million) and GAMMA (approximately £4 million).

Impairment of investments

We recorded an other than temporary impairment of £3 million in the three and nine months ended December 31, 2003 as compared with a
charge of £1 million and £41 million or 2.9% of revenues in the three and nine months ended December 31, 2002, respectively. The charge in the three months
ended December 31, 2003 is in line with our accounting policy whereby listed investments are marked to their market value at the end of each reporting period and unlisted investments are held
at the lower of cost and recoverable value. The charge of £41 million in the nine months ended December 31, 2002 was primarily related to Arraycom
(£18 million), Highspeed Office (£4 million) and ARH (£3 million) and a £8 million charge related to an
"other-than-temporary" decline in the value of our equity securities, primarily Bookham.

Interest income

Interest income of £4 million or 1.1% of revenues in the three months ended December 31, 2003, decreased £4 million
or 50% as compared to £8 million or 1.9% of revenues in the three months ended December 31, 2002, while interest income of £13 million or 1.2% of revenues
in the nine months ended December 31, 2003, decreased £28 million or 68.3% as compared to £41 million or 2.9% of revenues in the nine months ended
December 31, 2002. The income recognized for all periods relates primarily to interest received on deposits.

Interest expense

The charges in the three and nine months ended December 31, 2003 of £46 million and £75 million, respectively
includes interest charges related to our New Junior and Senior Notes and a charge related to the 10% premium redemption on the partial repayment of our Junior Notes (£15 million).
The interest charges of £35 million and £179 million in the three and nine months ended December 31, 2002 related primarily to interest expense on our
bonds and syndicated debt.

Income tax provision/benefit

In the three and nine months ended December 31, 2003, our effective income tax rate was -5.5% compared to the U.K. statutory rate of 30%. This
difference was primarily due to tax charges for those territories incurring tax payments and a full valuation allowance against deferred tax assets. A £20 million tax provision was
reversed in the nine months ended December 31, 2003 in respect of prior years following the Marconi Corporation plc Scheme of Arrangement.

In
comparison, the effective income tax rate in the three and nine months ended December 31, 2002 was 1.9% compared to the U.K. statutory rate of 30%. This difference was
primarily due to net non-deductible expenses and a full valuation allowance against deferred tax assets during the year ended March 31, 2003.

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Gain on sale of affiliates, net

During the nine months ended December 31, 2003, we recorded a gain of £94 million on the sale of fixed assets and investments as
compared with £nil in the nine months ended December 31, 2002. The gain of £94 million relates to the sale of our investments in Easynet and Confirmant.

Equity in loss of affiliates

The loss in the nine months ended December 31, 2002 relates primarily to our share of the losses in Easynet. We did not record our share of the losses in
Easynet up to the date of disposal as the carrying value of our investment in Easynet was £nil at March 31, 2003.

Gain on sale of discontinued operations, net

During the nine months ended December 31, 2003, we received further consideration and recorded gains on the sale of the discontinued operations of Tetra
(approximately £3 million) and UMTS (approximately £9 million) and Finmeccanica SpA, agreed to release approximately €12 million
(approximately £9 million), which had been retained against the purchase price and held in an escrow account following its purchase of our Strategic Communications subsidiary in
August 2002. As a result, we recorded total gains of £21 million on the sale of discontinued operations in the nine months ended December 31, 2003.

Loss from discontinued operations

The losses relate to our Mobile operations sold to Finmecannica in August 2003 and to our NAA business, for which we signed a sale agreement on
January 5, 2004.

Results of operationsSegmental

The U.S. Financial Accounting Standards Board standardStatement of Financial Accounting Standards No. 131"Disclosure about
Segments of an Enterprise and Related Information" requires us to determine and review our segments as reflected in the management information systems reports that our managers use in making
decisions. As we are an English company and we prepare our consolidated statutory financial statements under U.K. GAAP, our chief operating decision-maker evaluates our segment performance using U.K.
GAAP measures. Therefore, we have presented our discussion and analysis of segment revenues and operating (loss)/profit below based upon information prepared in accordance with U.K. GAAP. As described
above under the heading "Basis of Presentation", commencing with the quarter ended September 30, 2003, we have adopted a new reporting structure that segments our business along geographical
lines. As required, we have reflected segment information on both the new and old basis, as it is impracticable for us to restate prior period information, with the exception of revenue information.
We have discussed and analyzed segmental revenues on both the new and old basis and operating (loss)/profit on the old basis.

A
reconciliation of revenue and segment operating (loss)/profit as reported under U.K. GAAP to the amounts presented in accordance with U.S. GAAP is set out in note 10 of our
condensed consolidated financial statements contained elsewhere herein.

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Segmental revenues (U.K. GAAP)new segment basis

The following table presents our revenues by product area in accordance with U.K. GAAP

|                                                 |  | Three months ended
December 31, |  | Nine months ended
December 31, | 
|------------------------------------------------ |  | ------------------------------- |  | ------------------------------ | 
|
|
|Optical Networks                                 |  | 81                              |  | 96                             | 
|Access Networks                                  |  | 62                              |  | 69                             | 
|Other Network Equipment                          |  | 17                              |  | 11                             | 
|                                                 |  |                                 |  |                                | 
|Europe/RoW Network Equipment                     |  | 160                             |  | 176                            | 
|                                                 |  |                                 |  |                                | 
|Installation, Commissioning & Maintenance (IC&M) |  | 48                              |  | 53                             | 
|Value-Added Services (VAS)                       |  | 68                              |  | 103                            | 
|                                                 |  |                                 |  |                                | 
|Europe/RoW Network Services                      |  | 116                             |  | 156                            | 
|                                                 |  |                                 |  |                                | 
|Total Europe/RoW businesses                      |  | 276                             |  | 332                            | 
|                                                 |  |                                 |  |                                | 
|BBRS Equipment                                   |  | 30                              |  | 32                             | 
|OPP Equipment                                    |  | 43                              |  | 30                             | 
|                                                 |  |                                 |  |                                | 
|U.S. Network Equipment                           |  | 73                              |  | 62                             | 
|                                                 |  |                                 |  |                                | 
|BBRS Services                                    |  | 13                              |  | 19                             | 
|OPP Services                                     |  | 12                              |  | 20                             | 
|                                                 |  |                                 |  |                                | 
|U.S. Network Services                            |  | 25                              |  | 39                             | 
|                                                 |  |                                 |  |                                | 
|TotalU.S. businessescontinuing operations(1)   |  | 98                              |  | 101                            | 
|                                                 |  |                                 |  |                                | 
|OngoingNetwork Equipment and Network Services   |  | 374                             |  | 433                            | 
|Other                                            |  |                                |  | 10                             | 
|                                                 |  |                                 |  |                                | 
|Ongoing operations                               |  | 374                             |  | 443                            | 
|                                                 |  |                                 |  |                                | 
|NA Access Equipment(2)                           |  | 34                              |  | 23                             | 
|Other discontinued operations(2)                 |  |                                |  |                               | 
|                                                 |  |                                 |  |                                | 
|Group                                            |  | 408                             |  | 466                            | 
|                                                 |  |                                 |  |                                | 
|NARF(1)                                          |  | 135                             |  |                                | 
|Non NARF                                         |  | 273                             |  |                                | 
|                                                 |  |                                 |  |                                | 
|Group                                            |  | 408                             |  |                                | 
|                                                 |  |                                 |  |                                | 

---

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Three months ended December 31, 2003 compared to three months ended December 31, 2002

Revenues from continuing operations decreased in both Network Equipment and Network Services (hereafter "total Network revenues") in the three months ended
December 31, 2003 with the declines in the European/RoW Network Equipment, Value-Added Services and U.S. Network Services partially offset by 18% growth in revenues of U.S. Network Equipment.

Revenues
from Network Equipment accounted for 62% of Networks revenues in the three months ended December 31, 2003, compared to 55% of total Network revenues in the three months
ended December 31, 2002. Sales of Network Services represented the balance.

Europe/RoW Businesses (74% of Q3 total Network revenues)

The reduction in revenues was relatively evenly spread between Network Equipment, which accounted for 58% of Europe/RoW revenues in the three months ended
December 31, 2003 compared to 53% for the three months ended December 31, 2002 and Network Services, which accounted for the balance.

Optical Networks (22% of Q3 total Network revenues)

There has been a significant reduction in capital expenditure on optical networking equipment since the corresponding period of the previous year as operators
have increasingly focused their capital spend away from this area of their networks and onto broadband access deployments, with the reduced spend
in optical focused on activities to maintain existing infrastructure rather than on new network build projects. We expect this trend to continue in the medium-term.

From
a geographic perspective, the decline in revenues occurred in EMEA offset by a slight increase in India while sales in CALA remained relatively stable albeit at a low level. In
EMEA, which accounted for approximately 73% of Optical Network revenues in the three months ended December 31, 2003, the reduced level of sales to BT discussed above was partially offset by
increased sales to Telecom Italia in Italy and particularly impacted sales of our lower order SDH equipment, which in total accounted for approximately 80% of Optical Network sales in the period.

Access Networks (17% of Q3 total Network revenues)

The decline in Access Networks revenues was driven by a reduction in the level of sales of Voice Systems (24% of Access Networks revenues) and other narrowband
access products (23% of Access Networks revenues) as a result of a software upgrade carried out in the U.K. in the three months ended December 31, 2002, as well as generally weaker market
demand for mature narrowband products amongst our major customers.

Fixed
Wireless Access equipment accounted for approximately 39% of Access Network revenues in the three months ended December 31, 2003, an increase from 28% for the three months
ended December 31, 2002 as a direct result of increased demand for these products from wireless operators in Germany.

Sales
of our Access Hub represented approximately 14% of Access Network revenues in the three months ended December 31, 2003, slightly up from the three months ended
December 31, 2002. This was a result of increased sales to Fastweb in Italy, as described above. The volume of shipments to Telecom Italia increased significantly towards the end of the three
months ended December 31, 2003 and in accordance with the contract terms these will be recognized as revenues during the quarter ending March 31, 2004.

94%
of Access Network revenues were generated in EMEA in the three months ended December 31, 2003 with APAC accounting for a substantial part of the balance.

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Other Network Equipment (4% of Q3 total Network revenues)

The £6 million or 55% increase in revenues to £17 million resulted mainly from phasing of long-term legacy
infrastructure contracts in Hong Kong.

Installation, Commissioning and Maintenance (IC&M) (13% of Q3 total Network revenues)

IC&M activities mainly comprise the initial installation, commissioning and longer-term support services element of sales of our Optical Networks and
Access Networks equipment.

The
decrease was due to the reduction in volumes of Network Equipment deliveries predominantly in the U.K., partially offset by the increased installation work in Germany for the rollout
of fixed wireless access equipment.

During
the three months ended December 31, 2003, EMEA accounted for 94% of IC&M revenues, with the balance in CALA and APAC.

Value Added Services (VAS) (18% of Q3 total Network revenues)

VAS comprises three main activities:



As
previously disclosed in the three months ended September 30, 2003, there were three main factors behind this substantial decline in revenues:



EMEA
accounted for 91% of VAS sales in the three months ended December 31, 2003, North America for 7% and CALA for 2%.

U.S. Businesses (26% of Q3 total Network revenues)

Excluding NAA, Network Equipment grew by 18% and accounted for 74% of total U.S. business revenues in the three months ended December 31, 2003 as compared
with 61% in the three months ended December 31, 2002. This was offset by a 36% reduction in Network Services, which accounted for the balance of the U.S. business revenues of 26% as compared
with 39% in the three months ended December 31, 2002.

Broadband Routing and Switching (BBRS) (12% of Q3 total Network revenues)

BBRS recorded total revenues of £43 million in the three months ended December 31, 2003, down by £8 million or 16%
compared to £51 million in the three months ended December 31, 2002. The slight decline in sales of BBRS equipment was compounded by a further decline in service revenues.

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BBRS Equipment

The slight decrease in equipment sales was due to the impact of the weakening U.S. dollar, with sales in U.S. dollars actually showing an increase due to higher
sales to the U.S. Federal Government.

In
the three months ended December 31, 2003 North America accounted for 81% of BBRS equipment revenues, with EMEA at 14% and APAC at 5%.

BBRS Services

The lower level of service revenues was due to a combination of a drop in the support renewal rate year on year reflecting our increasing focus on government
contracts rather than our enterprise customer base and the completion of the first phase of a significant commercial airport project in the year ended March 31, 2003.

Outside Plant and Power (OPP) (14% of Q3 total Network revenues)

Total OPP revenues of £55 million in the three months ended December 31, 2003, increased by £5 million or 10%
compared to £50 million in the three months ended December 31, 2002. Growth in sales of OPP equipment was offset by a decline in sales of OPP services.

We
are currently managing our OPP business for value and ultimately for disposal. Any net cash proceeds from this disposal will be applied to pay down our Senior Notes.

OPP Equipment

We
continued to ship a relatively high level of OPP equipment to key customers in the region (in particular AT&T Wireless and Verizon Wireless). In the three months ended
December 31, 2003, 89% of OPP equipment revenues were generated in North America and 11% in CALA.

OPP Services

The
reduction in sales of OPP services mainly resulted from reduced spending on central office services by U.S. wireline customers.

Other

Other Revenues for the three months ended December 31, 2002 amounted to £10 million and related mainly to sales from Tetra prior to its
disposal.

North American Access (NAA)

NAA revenues for the three months ended December 31, 2003 amounted to £34 million, a £11 million or 48% increase as
compared to £23 million in the three months ended December 31, 2002. This growth was mainly driven by BellSouth's accelerated ADSL roll-out programme.

Nine months ended December 31, 2003 compared with nine months ended December 31, 2002

Revenues were down across all major product and service areas in both our Europe/RoW and U.S. businesses in the nine months ended December 31, 2003
compared to the nine months ended December 31, 2002.

Network
Equipment revenues accounted for 61% of total Network revenues, compared with the 57% of Networks revenues in the nine months ended December 31, 2002.

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Network
Services accounted for the remaining 39% of Networks revenues in the nine months ended December 31, 2003 as compared with 43% of total Network revenues in the same period
last year.

Europe/RoW Network Equipment

Optical Networks

Optical Network revenues decreased due to the general decline in demand for optical equipment described above as well as the shift in our customers' investment
from optical transmission networks towards broadband access rollouts. Also, in the first nine months of the previous financial year, we completed a number of new optical network build projects,
particularly in Italy for Wind and Vodafone, which have not been repeated this year.

Access Networks

Access Network revenues decreased in the nine months ended December 31, 2002. In the three months ended June 30, 2003, we experienced a sharp
decline in sales of access products in the German market, which improved with increased demand for fixed wireless access products from wireless operators in the subsequent quarters as a result of the
roll out of 3G mobile networks in order to reach the 25% mobile coverage threshold prior to the December 31, 2003 deadline as required by the national regulator. Sales of these products were
lower than in the previous financial year as a result of a decline in revenues in other central European markets. Voice Systems and other legacy narrowband products also contributed to the decline in
revenues due to software upgrades that were not repeated in the nine months ended December 31, 2003.

Other Network Equipment

Sales of Other Network Equipment were up mainly due to the phasing of long-term legacy infrastructure contracts in Hong Kong described above.

Europe/RoW Network Services

Most of the reduction in revenues of Network Services in Europe/RoW occurred in Value-Added Services where revenues decreased as a result of significantly reduced
revenues in the Middle East, a reduction in the level of sales of wireless software and services, particularly in the U.S. and the disposal of our SMS subsidiary. The £15 million
decrease in sales of IC&M corresponded with the lower level of equipment sales in our Optical Networks and Access Networks activities.

U.S. Businesses

BBRS

Total BBRS revenues for the nine months ended December 31, 2003 were £139 million, down by £28 million or 17% as
compared with £167 million in the nine months ended December 31, 2002. The majority of the decline occurred in the first three months of the period mainly as a result of
reduced sales through indirect channels in APAC and EMEA. In North America, a lower level of sales to enterprise customers as described above was offset by an increase in sales to the U.S. Federal
Government during the period.

OPP

Total OPP revenues for the nine months ended December 31, 2003 amounted to £160 million, a £16 million or 9% decrease
as compared with £176 million in the nine months ended December 31, 2002. Growth in the three months ended December 31, 2003 was driven by increased sales of OPP

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equipment
to North American wireless operators but was not sufficient to offset the declines in both equipment and services in the six months ended September 30, 2003, which were largely due to
the significant reductions in capital expenditure year on year by telecom network operators in the U.S. and Mexico.

Other

Other Revenues for the nine months ended December 31, 2002 amounted to £37 million and related mainly to sales from Tetra prior to its
disposal.

North American Access (NAA)

NAA revenues for the nine months ended December 31, 2003 amounted to £89 million, a £18 million or 25% increase as
compared to £71 million in the nine months ended December 31, 2002. This growth was mainly driven by BellSouth's accelerated ADSL roll-out programme.

Segmental operating (loss)/profitnew segment basis

The table below presents a summary of U.K. GAAP segmental operating (loss)/profit (defined as operating (loss)/profit of continuing operations before central
costs, goodwill amortization, U.K. GAAP operating exceptional items and share option costs) based upon our new segment structure. A reconciliation of U.K. GAAP segmental operating (loss)/profit to
operating (loss)/profit on a U.S. GAAP basis together with a description of the differences between U.K. and U.S. GAAP is presented in note 10 of the notes to our condensed consolidated
financial statements contained elsewhere herein.

|                         |  | Three months
ended
December 31,
2003 |   | Nine months
ended
December 31,
2003 |  
|------------------------ |  | ------------------------------------ | - | ----------------------------------- | -
|
|U.K. GAAP                |  |                                      |   |                                     |  
|NARF                     |  | 16                                   |   | 43                                  |  
|Non NARF                 |  | (3                                   | ) | (69                                 | )
|                         |  |                                      |   |                                     |  
|Segmental operating loss |  | 13                                   |   | (26                                 | )
|                         |  |                                      |   |                                     |  

Our
two segments NARF and Non NARF have very different operating profiles as described in our discussion of our results to September 30, 2003, published November 13, 2003,
and as discussed in the "Results of Operations" for NARF and Non NARF on page 43.

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Segmental revenues (U.K. GAAP)old segment basis

The following table presents our revenues by product area in accordance with U.K. GAAP based upon our old segment structure:

|                          |  | Three months ended
December 31, |  | Nine months ended
December 31,
|------------------------- |  | ------------------------------- |  | ------------------------------
|
|
|Network Equipment:        |  |                                 |  |                               
|Optical Networks          |  | 81                              |  | 96                            
|BBRS                      |  | 30                              |  | 32                            
|European Access           |  | 62                              |  | 69                            
|Outside Plant & Power     |  | 43                              |  | 30                            
|Other Network Equipment   |  | 17                              |  | 11                            
|                          |  |                                 |  |                               
|Total                     |  | 233                             |  | 238                           
|                          |  |                                 |  |                               
|Network Services:         |  |                                 |  |                               
|IC&M                      |  | 60                              |  | 73                            
|VAS                       |  | 81                              |  | 122                           
|                          |  |                                 |  |                               
|Total                     |  | 141                             |  | 195                           
|                          |  |                                 |  |                               
|Networks revenues         |  | 374                             |  | 433                           
|Other.                    |  |                                |  | 10                            
|                          |  |                                 |  |                               
|Totalongoing operations. |  | 374                             |  | 443                           
|NA Access Equipment       |  | 34                              |  | 23                            
|Discontinued              |  |                                |  |                              
|                          |  |                                 |  |                               
|Total U.K. GAAP revenues  |  | 408                             |  | 466                           
|                          |  |                                 |  |                               

Three months ended December 31, 2003 compared with three months ended December 31, 2002

Network Equipment

Network Equipment revenues of £233 million or 62.3% of total Network revenues in the three months ended December 31, 2003, decreased
£5 million or 2.1% as compared to £238 million or 55.0% of total Network revenues in the three months ended December 31, 2002.

Optical Networks (22% of Q3 total Network revenues)

There has been a significant reduction in capital expenditure on optical networking equipment since the corresponding period of the previous year as operators
have increasingly focused their capital spend away from this area of their networks and onto broadband access deployments, with the reduced spend in optical focused on activities to maintain existing
infrastructure rather than on new network build projects. We expect this trend to continue in the medium-term.

From
a geographic perspective, the decline in revenues occurred in EMEA offset by a slight increase in India while sales in CALA remained relatively stable albeit at a low level. In
EMEA, which accounted for approximately 73% of Optical Network revenues in the three months ended December 31, 2003, the reduced level of sales to BT discussed above was partially offset by
increased sales to Telecom Italia in Italy and particularly impacted sales of our lower order SDH equipment, which in total accounted for approximately 80% of Optical Network sales in the period.

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BBRS (8% of Q3 total Network revenues)

The slight decrease in equipment sales was due to the impact of the weakening U.S. dollar, with sales in U.S. dollars actually showing an increase due to higher
sales to the U.S. Federal Government. In the three months ended December 31, 2003 North America accounted for 81% of BBRS equipment revenues, with EMEA at 14% and APAC at 5%.

Access Networks (17% of Q3 total Network revenues)

The decline in Access Networks revenues was driven by a reduction in the level of sales of Voice Systems (24% of Access Networks revenues) and other legacy
narrowband access products (23% of Access Networks revenues) as a result of a software upgrade carried out in the U.K. in the three months ended December 31, 2002, as well as generally weaker
market demand for mature narrowband products amongst our major customers.

Fixed
Wireless Access equipment accounted for approximately 39% of Access Network revenues in the three months ended December 31, 2003, an increase from 28% for the three months
ended December 31, 2002 as a direct result of increased demand for these products from wireless operators in Germany.

Sales
of our Access Hub represented approximately 14% of Access Network revenues in the three months ended December 31, 2003, slightly up from the three months ended
December 31, 2002. This was a result of increased sales to Fastweb in Italy, as described above. The volume of shipments to Telecom Italia increased significantly towards the end of the three
months ended December 31, 2003 and in accordance with the contract terms these will be recognized as revenues during the current quarter.

94%
of Access Network revenues were generated in EMEA in the three months ended December 31, 2003 with APAC accounting for a substantial part of the balance.

Outside Plant and Power (OPP) (12% of Q3 total Network revenues)

We continued to ship a relatively high level of OPP equipment to key customers in the region (in particular AT&T Wireless and Verizon Wireless). In the three
months ended December 31, 2003, 89% of OPP equipment revenues were generated in North America and 11% in CALA.

We
are currently managing our OPP business for value and ultimately for disposal. Any net cash proceeds from this disposal will be applied to pay down our senior notes.

Other Network Equipment (4% of Q3 total Network revenues)

The £6 million or 55% increase in revenues to £17 million resulted mainly from phasing of long-term legacy
infrastructure contracts in Hong Kong.

Network Services

Network Services revenues of £141 million or 37.7% of total Network revenues in the three months ended December 31, 2003, decreased
£54 million or 27.7% as compared to £195 million or 45.0% of total Network revenues in the three months ended December 31, 2002.

Installation, Commissioning and Maintenance (IC&M) (16% of Q3 total Network revenues)

IC&M activities mainly comprise the initial installation, commissioning and longer-term support services element of sales of our Optical Networks and
Access Networks equipment.

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The
decrease was due to the reduction in volumes of Network Equipment deliveries predominantly in the U.K., partially offset by the increased installation work in Germany for the rollout
of fixed wireless access equipment.

During
the three months ended December 31, 2003, EMEA accounted for 75% of IC&M revenues, with the balance in CALA and APAC.

Value Added Services (VAS) (22% of Q3 total Network revenues)

VAS comprises three main activities:



As
previously disclosed in the three months ended September 30, 2003, there were three main factors behind this substantial decline in revenues:



EMEA
accounted for 91% of VAS sales in the three months ended December 31, 2003, North America for 7% and CALA for 2%.

Nine months ended December 31, 2003 compared with nine months ended December 31, 2002

Network Equipment revenues accounted for 61% of total Network revenues, compared with the 57% of Networks revenues in the nine months ended December 31,
2002.

Network
Services accounted for the remaining 39% of Networks revenues in the nine months ended December 31, 2003 as compared with 43% of Networks revenues in the same period last
year.

Optical Networks (23% of total Network revenues)

Optical Network revenues decreased due to the general decline in demand for optical equipment described above as well as the shift in our customers' investment
from optical transmission networks towards broadband access rollouts. Also, in the first nine months of the previous financial year, we completed a number of new optical network build projects,
particularly in Italy for Wind and Vodafone, which have not been repeated this year.

BBRS (9% of total Network revenues)

Total BBRS revenues for the nine months ended December 31, 2003 were £96 million, down by £9 million or 8.6% as
compared with £105 million in the nine months ended December 31, 2002. The majority of the decline occurred in the first three months of the period mainly as a result of
reduced sales through indirect channels in APAC and EMEA. In North America, a lower level of sales to enterprise customers as described above was offset by an increase in sales to the U.S. Federal
Government during the period.

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Access Networks (14% of total Network revenues)

Access Network revenues decreased in the nine months ended December 31, 2002. In the three months ended June 30, 2003, we experienced a sharp
decline in sales of access products in the German market, which improved with increased demand for fixed wireless access products from wireless operators in the subsequent quarters as a result of the
roll out of 3G mobile networks in order to reach the 25% mobile coverage threshold prior to the December 31, 2003 deadline as required by the national regulator. Sales of these products were
lower than in the previous financial year as a result of a decline in revenues in
other central European markets. Voice Systems and other legacy narrowband products also contributed to the decline in revenues due to software upgrades that were not repeated in the nine months ended
December 31, 2003.

Outside Plant and Power (OPP) (11% of total Network revenues)

Total OPP revenues for the nine months ended December 31, 2003 amounted to £117 million, a £7 million or 6.4%
increase as compared with £110 million in the nine months ended December 31, 2002. Growth in the three months ended December 31, 2003 was driven by increased sales of
OPP equipment to North American wireless operators but was not sufficient to offset the declines in both equipment and services in the six months ended September 30, 2003, which were largely
due to the significant reductions in capital expenditure year on year by telecom network operators in the U.S. and Mexico.

Other Network Equipment (4% of total Network revenues)

Sales of Other Network Equipment were up mainly due to the phasing of long-term legacy infrastructure contracts in Hong Kong described above.

Network Services (39% of total Network revenues)

Most of the reduction in revenues of Network Services in Europe/RoW occurred in Value-Added Services where revenues decreased as a result of significantly reduced
revenues in the Middle East, a reduction in the level of sales of wireless software and services, particularly in the U.S. and the disposal of our SMS subsidiary. The £38 million
decrease in sales of IC&M corresponded with the lower level of equipment sales in our Optical Networks and Access Networks activities.

North American Access (NAA)

NAA revenues increased and this growth was mainly driven by BellSouth's accelerated ADSL roll-out programme.

Segmental operating (loss)/profitold segment basis

The table below presents a summary of U.K. GAAP segmental operating (loss)/profit (defined as operating (loss)/profit of continuing operations before central
costs, goodwill amortization, U.K. GAAP operating exceptional items and share option costs). A reconciliation of U.K. GAAP segmental operating (loss)/profit to operating (loss)/profit on a U.S. GAAP
basis together with a description of

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the
differences between U.K. and U.S. GAAP is presented in note 10 of the notes to our condensed consolidated financial statements contained elsewhere herein.

|                         |  | Three months ended
December 31, |   | Nine months ended
December 31, |  
|------------------------ |  | ------------------------------- | - | ------------------------------ | -
|
|
|U.K. GAAP                |  |                                 |   |                                |  
|Network Equipment        |  | (7                              | ) | (46                            | )
|Network Services         |  | 15                              |   | 20                             |  
|Other                    |  |                                |   | (8                             | )
|                         |  |                                 |   |                                |  
|Continuing operations    |  | 8                               |   | (34                            | )
|North American Access    |  | 5                               |   | (3                             | )
|                         |  |                                 |   |                                |  
|Segmental operating loss |  | 13                              |   | (37                            | )
|                         |  |                                 |   |                                |  

The
improvements in segmental operating losses of £50 million and £209 million in the three and nine months ended December 31, 2003, as
compared with the three and nine months ended December 31, 2003, respectively were achieved as a result of the cost reduction initiatives to improve gross margin and to lower operating costs
discussed earlier.

Network Equipment

In Network Equipment we recorded a £39 million improvement in segment operating loss in the three months ended December 31, 2003, as
compared to the three months ended December 31, 2002. For the 9 months ended December 31, 2003, we recorded a £147 million improvement in operating loss in the
as compared to the nine months ended December 31, 2002. These improvements were largely driven by the substantial cost reductions achieved in our supply chain and savings across all areas of
operating expense and more than offset the impact of under-recoveries arising from the decline in Network Equipment sales.

Network Services

In Network Services, operating profit of £15 million for the three months ended December 31, 2003 of £15 million,
decreased £5 million as compared to £20 million for the three months ended December 31, 2002. This decrease was driven by lower sales volumes, which more
than offset improved utilization of resources in this labor intensive activity and savings in operating expenses. In the nine months ended December 31, 2003, improved utilization of resources
and savings in operating expenses outweighed the impact of lower sales volumes and operating profit of £32 million increased £7 million as compared to
£25 million in the nine months ended December 31, 2002.

Other

Other consisted of the operating losses of Tetra and UMTS, which were disposed of in July 2002 and March 2003 respectively.

Liquidity and capital resources

Operating activities

Net cash used in operating activities of continuing operations was £84 million in the nine months ended December 31, 2003. This resulted
primarily from the income from continuing operations of £2,698 million, net of the gain on extinguishment of liabilities of £2,695 million, the gain on settlement

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of
equity forward contracts of £123 million, the gain on sale of affiliates of £94 million, partially offset by depreciation and amortization of
£91 million.

Net
cash used in operating activities of continuing operations was £383 million in the nine months ended December 31, 2002. This resulted primarily from the
loss from continuing operations £991 million, changes in operating assets and liabilities, net of the effect of extinguishment of liabilities of £14 million and
changes in current and deferred taxes of £17 million, partially offset by a provision for related party receivable of £204 million, an impairment of
long-lived assets of £59 million, equity in net loss of affiliates of £60 million and depreciation and amortization of
£143 million.

Investing activities

Net cash provided by investing activities of £140 million in the nine months ended December 31, 2003 was primarily due to proceeds from
the sale of long lived assets of £23 million, proceeds from the sale of investments in securities of £29 million and disposal of interests in related parties of
£108 million, partially offset by purchases of property, plant and equipment of £20 million.

Net
cash provided by investing activities of £367 million in the nine months ended December 31, 2002 was primarily due to cash received from disposals of
interests in related parties of £392 million and proceeds from the sale of long lived assets of £33 million, partially offset by purchases of property, plant and
equipment of £34 million and purchases of interests in related parties of £24 million.

Total
Network Equipment and Network Services capital expenditures were £20 million in the nine months ended December 31, 2003, with
£12 million spent in the six months to September 30, 2003 and a further £8 million in the three months to December 31, 2003. We have continued to
maintain capital expenditures well below the level of depreciation expense, which was £59 million in the nine months ended December 31, 2003. During the nine months ended
December 31, 2003, capital expenditures were primarily related to the Optical Networks and BBRS businesses.

We
currently expect the level of our capital expenditures to rise but to remain at or below the level of depreciation expense.

Financing activities

Net cash provided by financing activities of £262 million in the nine months ended December 31, 2003 was primarily due to restricted
cash transferred from restricted accounts of £755 million, partially offset by cash paid in connection with the Financial Restructuring of £330 million and term
loan repayments of £156 million, which represented early repayments of our Junior Notes.

Net
cash used by financing activities of £943 million in the nine months ended December 31, 2002 was primarily due to restricted cash transferred to restricted
accounts of £816 million and repayments on short-term borrowings of £71 million, partially offset by cash provided by related parties of
£24 million.

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Contractual obligations and other commercial commitments

The following tables summarize our actual contractual obligations and commercial commitments at December 31, 2003:

|                        |  | Payments due in fiscal year ended March 31,
|----------------------- |  | -------------------------------------------
|
|
|Contractual obligations |  |                                            
|Long-term debt          |  | 27                                         
|Operating leases        |  | 24                                         
|                        |  |                                            
|Total                   |  | 51                                         
|                        |  |                                            

|                                      |  | Amounts expiring in fiscal year ended March 31,
|------------------------------------- |  | -----------------------------------------------
|
|
|Other commercial commitments          |  |                                                
|Bank bonds or surety bonds            |  | 27                                             
|Undrawn customer financing commitment |  |                                               
|                                      |  |                                                
|Total                                 |  | 27                                             
|                                      |  |                                                

Contract bonding facilities

Some customers in the telecommunications market require that bank bonds or surety bonds (issued by insurance companies) are provided to guarantee performance of
the equipment supplier. We had £175 million of bank bonds or surety bonds, guaranteeing our performance in respect of certain contracts, outstanding as at December 31, 2003
with both banks and insurance companies worldwide as compared with £168 million at March 31, 2003. Following our Financial Restructuring, we entered into a new committed
Super-priority Performance Bonding Facility that
allows us to procure a further £50 million of performance bonding, of which £20 million has been drawn at December 31, 2003. A number of our performance
bond arrangements carry rights for the bond issuer to call for cash collateral, either unconditionally or upon the occurrence of certain events. We estimate that as at December 31, 2003,
performance bonds with a face value of approximately £43 million had varying conditional or unconditional rights to call for cash collateral. As part of our restructuring,
substantially all new bonds currently have to be cash collateralized. Of the £107 million of collateral at December 31, 2003, £25 million related to
collateral on bonds, which have been retired and rolled into collateralization of the new Super-priority Performance Bonding Facility, and £8 million was collateral against bonds
issued in favor of companies, which have now been sold. In the latter case, we are in the process of procuring the release of this collateral.

Customer financing commitments

We have not issued any new customer finance commitments during the nine months ended December 31, 2003, and will not require cash resources to fund these
activities in the foreseeable future. At December 31, 2003, in respect of the commitments outstanding prior to the reporting period, we had customer finance commitments of approximately
£37 million of which £36 million had been drawn.

Pensions

Our pension scheme deficits at December 31, 2003 and 2002 amounted to £266 million and £366 million respectively.

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At
September 30, 2003 an actuarial assessment of our defined benefit pension scheme liabilities and a valuation of the pension assets was performed. In accordance with our
accounting policies, we have not updated the actuarial assessment at December 31, 2003. Service costs, plan contributions, benefit payments and net finance costs have been recognized in
accordance with the actuarial assumptions set at September 30, 2003.

We
will retain all liabilities for pension obligations with respect to the NAA business employees. As a result, the current terms of the Memorandum of Understanding with the Pension
Benefit Guaranty Corporation require that we make contributions to the U.S. pension plans in an estimated amount of approximately U.S.$8 million after the sale of the NAA business is completed.
The actual required contributions may vary from the estimate due to changes in the plan liabilities, the value of the plan assets, and the actuarial assumptions required to be used to determine the
actual contribution amount. However, we are currently discussing with the Pension Benefit Guaranty Corporation an alternative
method of satisfying our obligations under the memorandum which, if permitted, would reduce the required contributions to some extent.

IT outsourcing agreement

We signed an information technology outsourcing agreement with Computer Sciences Corporation International Systems Management Inc. ("CSC") in
May 2003. Under the terms of the agreement, we transferred property, plant and equipment with an approximate book value of £17 million and 420 employees to CSC in exchange
for cash proceeds of £26 million. In addition to the transfer of employees, we novated existing service and maintenance contracts to CSC.

The
IT service contract is for a period of ten years with a right to terminate without cause, but subject to a number of penalties, after two years and contains an obligation for us to
repurchase at fair value the assets with which CSC is providing the service at such time that the contract ceases. This obligation to purchase the assets cannot be quantified until such time that
notice to terminate has been given and a contract cessation date is known. Consequently, we have not quantified this obligation at December 31, 2003.

North American Access (NAA)

On January 5, 2004, we executed a definitive agreement for the sale of the NAA business for cash consideration of U.S.$240 million. Under the terms of the
agreement, a subsidiary of Advanced Fibre Communications, Inc. will acquire the NAA business. The cash proceeds will not be received until the transaction is closed. The transaction is subject to
regulatory approval and other customary closing conditions and is expected to close during the first calendar quarter of 2004. The cash proceeds when received will be put into the Mandatory Redemption
Escrow Account and used to pay down Junior Notes and Senior Notes.

Current liquidity position

At December 31, 2003, our cash and cash equivalents totaled £687 million as compared with £1,156 million at
March 31, 2003, of which £103 million (£515 million at March 31, 2003) was denominated in sterling, £421 million
(£282 million at March 31, 2003) in U.S. dollars, £120 million (£306 million at March 31, 2003) in euro and the balance of
£43 million (£53 million at March 31, 2003) in other currencies. Of the £687 million at December 31, 2003,
£209 million is classified as restricted cash, and £478 million is free cash available to us. The £209 million of restricted cash is comprised
of £107 million collateral against present and future bonding facilities, £38 million in an escrow account to meet any claims for collateral on existing
performance bonds and guarantees, £13 million deposited against secured loans in Italy, £19 million in our captive insurance company and
£32 million in the Mandatory Redemption Escrow Account. The £478 million of free cash available to

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us
is comprised of £412 million of available Treasury deposits and £66 million of global working capital balances within our subsidiaries and cash in transit.

Our
outstanding borrowings at December 31, 2003 were £504 million (net of debt discount of approximately £32 million) and consisted primarily
of the U.S.$717 million (approximately £376 million at December 31, 2003, net of debt discount of approximately £24 million) of Senior Notes due in
April 2008, and the U.S.$238 million (approximately £125 million at December 31, 2003, net of debt discount of approximately £8 million) of
Junior Notes due in October 2008 as compared with £4,416 million at 31 March 2003. Of the remaining Junior Notes at December 31, 2003,
£26 million has been reclassified to current liabilities as the fifth partial redemption of the Junior Notes was completed on January 12, 2004. The
£3,912 million reduction in borrowings from March 31, 2003 primarily reflects the extinguishment of £4,299 million of debt, partially offset by the
issuance of new Junior and Senior notes totaling U.S.$1,204 million (approximately £729 million), which were a result of the completion of our Financial Restructuring, net of
repayments on and repurchases of the Junior Notes through December 31, 2003 of approximately U.S.$249 million (approximately £150 million).

The
repayments on the Junior Notes resulted from the mandatory partial redemptions and repurchases of the Junior Notes completed during the nine months to December 31, 2003, which
totaled U.S.$249 million, of which U.S.$80 million were completed in the three months to December 31, 2003.

After
the end of the quarter, on January 12, 2004, we completed the fifth partial redemption of our Junior Notes. All Junior Notes outstanding, including those then owned by
Marconi Corporation plc, were subject to this partial redemption. As a result, this further reduced the total principal amount outstanding to approximately U.S.$209 million (approximately
£117 million) of which approximately U.S.$18 million (approximately £10 million) was then owned by Marconi
Corporation plc. The cash we received as a result of our holding of Junior Notes at the time of the partial redemption has been transferred to the Mandatory Redemption Escrow Account to be applied to
future redemptions.

As
previously disclosed, after the quarter-end on February 2, 2004, we proceeded with the cancellation of our entire holding in the Junior Notes, in accordance with
the terms of those Notes.

On
February 11, 2004, we announced the sixth partial redemption of our Junior Notes, as a result of further releases of cash collateral held against performance bonding. All Junior Notes
that we repurchased prior to the redemption have been cancelled and therefore the total redemption amount of U.S.$34 million (approximately £19 million) will be used to
reduce the total principal outstanding to U.S.$157 million (approximately £86 million).

Furthermore,
upon completion, the U.S.$240 million (approximately £135 million) proceeds from the agreed sale of NAA will be used partly to fund the final
redemption of our Junior Notes and then to initiate repayment/redemption of our Senior Notes at 110% of par value.

Financial Restructuring

On May 19, 2003, we concluded our Financial Restructuring and the Schemes of Arrangement for the Marconi Corporation plc and Marconi plc became effective.
The Marconi Corporation plc. Scheme of Arrangement cancelled specific borrowings and creditors amounting to approximately £4.8 billion in consideration for which we paid
£340 million of cash, issued new debt securities of approximately £756 million and issued one billion (200 million after our subsequent five for one share
consolidation that occurred in September 2003) new ordinary shares with a nominal value of £50 million.

On
May 19, 2003, our previously agreed settlement with the ESOP derivative banks relating to the ESOP derivative transactions became effective and we paid
£35 million to the ESOP derivative banks.

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The terms of the indentures governing our new Senior and Junior Notes significantly restrict our ability to borrow additional funds. Under the terms of these indentures, no external
borrowings other than in the U.S. working capital facility referred to below, are permitted other than under certain restricted circumstances. In addition, our U.S. based businesses have been
ringfenced, and generally may no longer be funded by other members of the group outside of the ringfence. No external borrowing facilities are permitted for these U.S.-based businesses, other than a
committed U.S.$22.5 million (approximately £14 million) working capital facility. In addition, certain forms of liquidity available to us, including disposals and release of
restricted cash, are subject to terms whereby, under certain circumstances, the cash will be required to be used to redeem the Junior Notes, or, in the event that there are no Junior Notes
outstanding, the Senior Notes, at a cost of 110%.

Board changes

On January 27, 2003, we announced the resignation with immediate effect of Ian Clubb, a Non-Executive Director of the Company. Ian joined the
Board at the time of the completion of the Company's Financial Restructuring in May 2003 and has left for personal reasons.

As
previously reported, Pavi Binning took up the position of Chief Financial Officer on October 20, 2003.

Payment of interest

In the three months ended December 31, 2003, we paid interest of £15 million on our Junior and Senior Notes and paid an additional
£6 million in respect of the 10% redemption premium due as a result of the partial redemption of our Junior Notes. In addition, we made the third coupon payment due on our Junior
Notes on January 31, 2004 in cash (approximately £2.7 million).

Cash requirements

Our cash requirements in fiscal 2004 include funding operations including spending on R&D, the operational and financial restructuring, capital expenditures and
debt service costs.

We
have funded our activities through cash generated from our operational activities, the proceeds of disposals, bank borrowings and the sale of debt securities in the debt capital
markets. Following the Financial Restructuring, we are reliant on our cash balances to meet short- and medium-term cash requirements.

Employee stock option plans

On June 24, 2003, as we previously announced, we granted 15,230,000 nil cost share options (after the one for five share consolidation that occurred in
September 2003) to our executive directors and senior managers. A further 1,000,000 nil cost share options (after the one for five share consolidation) were granted in the quarter ended
September 30, 2003.

On
June 30, 2003, as we previously announced, we granted 5,856,800 market value share options (after the one for five share consolidation that occurred in September 2003)
to certain employees. A further 223,000 market value share options (after the one for five share consolidation) were granted in the quarter ended September 30, 2003.

Application of critical accounting policies

Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Management believes the most complex and sensitive judgments, because of their significance to the consolidated financial statements, result primarily from the need to make estimates
about the effects of matters that are

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inherently
uncertain. Our Operating and Financial Review and Prospects and note 2 to our audited Consolidated Financial Statements in our Form 20-F for the year ended
March 31, 2003 describe the significant accounting estimates and policies used in preparation of our financial statements. Actual results in these areas could differ from management's
estimates.

Embedded Derivatives

The new Senior and Junior Notes issued on May 19, 2003 include a 10% premium upon early redemption, which has been accounted for as an embedded derivative
in accordance with Financing Accounting Standard No. 133,"Accounting for Derivative Instruments and Hedging Activities"("SFAS 133"). The
fair value of the embedded derivative at December 31, 2003 was approximately
£20 million in relation to the Senior Notes and £13 million in relation to the Junior Notes. £2.6 million of the embedded derivative in
relation to the Junior Notes is included within short-term other liabilities and the remainder is included within long-term other liabilities.

We
have developed a fair value model with the assistance of outside advisors to arrive at an estimate of the fair value of the embedded derivative that uses various assumptions which
includes changes in credit risk, expected timing of redemption of our Notes and interest rates. The change in fair value of these embedded derivatives is recorded in our statement of operations as
interest expense, which is a non-cash item. The application of this accounting policy has increased the volatility of our reported income. While we have made an estimate of the fair value
of these embedded derivatives using a model that we believe to be appropriate and based upon reasonable assumptions, certain of the assumptions used are subjective and may require adjustment in the
future.

See
note 1 to the condensed consolidated financial statements contained elsewhere herein for recently issued accounting pronouncements that have not yet been adopted by us.

Risk Factors

Set forth below and elsewhere in this report and in other documents we file with the SEC are risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking statements contained in this report.

We have significant debt outstanding and significant debt service requirements, which make us more vulnerable to economic downturns and reduces our
flexibility.

We
have significant debt outstanding. As at December 31, 2003 our total long-term debt, net of debt discount of approximately £32 million, was
approximately £504 million. This is likely to limit our ability to obtain additional financing on satisfactory terms to fund working capital, capital expenditures, product
development efforts and acquisitions of new assets in excess of those in our current business plan. In addition, we will be required to devote a significant proportion of our cash flow from operations
to the payment of interest on our debt obligations, thereby reducing the funds available for other purposes. Our level of debt and the fixed nature of a portion of our debt service costs will make us
more vulnerable to economic downturns, reduce our flexibility to respond to changing business and economic conditions and limit our ability to pursue business opportunities, to finance our future
operations or business needs and to implement our business strategies.

We are required to comply with restrictive covenants and affirmative financial covenants, which significantly limit our financial and operational
flexibility.

The
terms of the instruments governing our outstanding Notes and our credit facilities require us and our subsidiaries to comply with restrictive covenants and, from and after
September 30, 2005, to

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comply
with some affirmative financial covenants. These restrictive covenants, among other things, restrict our and our subsidiaries' ability to:



Restrictions
stemming from these covenants and from the need to comply with the affirmative financial covenants will significantly limit our financial and operational flexibility and
could have a significant adverse effect on our business, results of operations and financial condition.

Our
ability to satisfy our affirmative financial covenants will be affected by changes affecting our business, results of operations and financial condition and, is therefore, subject to
the other risks described in this quarterly report. A failure to comply with the restrictive covenants or the affirmative financial covenants would, if not cured or waived, constitute an event of
default under some of our debt obligations. The occurrence of an event of default in respect of any of these debt obligations may permit acceleration of all amounts borrowed there under. This
acceleration in turn could constitute a cross-default under other borrowing arrangements to which we, or our subsidiaries are party. In such circumstances, there can be no assurance that we would have
sufficient resources to repay the full principal amount of our debt obligations. If this were to occur, our shareholders might then receive no return on their investment. Moreover, a failure to comply
with restrictive covenants constituting an event of default under one of our credit facilities would permit the lenders under that facility to terminate their commitments to make further extensions of
credit there under. This would likely have a material adverse effect on our business, results of operations and financial condition.

The telecommunications industry has experienced a severe downturn, many of our customers have reduced, and some are continuing to reduce, capital expenditure and,
as a result, demand for our products and services has declined and may continue to decline.

The
telecommunications industry has experienced a prolonged and severe downturn. Many of our current and potential customers are network operators that have or have had high levels of
indebtedness and, in some cases, emerging or weak revenue streams. Adverse economic conditions, network over-capacity due to excess build-out, lack of funding for
telecommunications development and overspending on license fees have forced network operators to undertake extensive restructuring and cost-cutting initiatives. In light of market
conditions, many of our customers have delayed delivery of orders previously placed and have implemented drastic reductions in capital expenditure in 2002 and 2003 as compared to 2001, and may
further reduce capital expenditure. As a result, demand for our products and network rollout services, has declined.

Our
near-term financial objectives do not depend on assumptions or expectations of improvement in market conditions for the telecommunications industry or improvement in
current levels of sales in

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our
businesses. However, they do assume that there will not be a further material deterioration in current market conditions or a material decline in sales levels. Additionally, achievement of our
longer-term financial objectives will depend upon an increase in our sales volumes based on an improvement in demand for our products and services, due to a recovery of the industry or
otherwise. Consequently, if demand remains weak for our products and services, resulting from the financial condition of our customers, market and industry conditions or otherwise, it is likely to
have a material adverse effect on our business, results of operations and financial condition in the longer term. In particular, this may affect our ability to achieve our profitability and cash flow
objectives and, consequently, it may impact on our future funding requirements.

We
cannot assure you that the telecommunications market will improve within any particular timeframe or at all, or that it will not experience subsequent, and possibly more severe and/or
prolonged, downturns in the future.

Rationalization and consolidation in the industry may cause us to experience a loss of customers and increased competition.

The
downturn in the telecommunications industry may cause rationalization and consolidation in the industry. Some network operators may merge and we and one or more of our competitors
may each supply products to the companies that merge. This rationalization and/or consolidation could result in our dependence on a smaller number of customers, purchasing decision delays by the
merged companies and/or our playing a lesser role, or no longer playing a role, in the supply of communications products to the merged companies.

A
rationalization of industry participants could also increase the supply of used communications products for resale by affected industry participants, resulting in increased competition
and pressure on pricing for our products. In addition telecommunications equipment suppliers may enter into business combinations, or may be acquired by or sell a substantial portion or their assets
to other competitors resulting in accelerated product development, increased financial strength, or a broader base of customers, creating even more powerful or aggressive competitors.

We are currently not profitable, have been experiencing net operating cash outflows and will need to effect further changes in our business in order to achieve
our near-term financial objectives.

We
are currently not profitable. We have not made an operating profit in the last two fiscal years. We do not expect trading conditions in the telecommunications market to improve in the
near-term and, as discussed above, we cannot be sure that those conditions will improve at all. Accordingly, our ability to become profitable and generate positive cash flow in the future
depends significantly on improving gross margins through changes in product mix, achieving operating efficiencies and reducing operating costs as well as there being no further material decline in
sales.

If
sales in our Network Equipment and Network Services businesses continue to decline materially for a prolonged period, it is unlikely that we will be able to return to and maintain
profitability or generate positive cash flow solely through gross margin improvements and operating cost reductions.

Because
of these risks and uncertainties, as well as the other risks and uncertainties discussed in this quarterly report, we cannot be certain that our actual experience will correspond
with our assumptions and expectations. Thus, we cannot be certain that we will be able to return to profitability or generate positive operating cash flows within a particular timeframe or at all.
Moreover, even if we do attain profitability and positive cash flow, we may not be able to sustain or increase this from quarter to quarter or from year to year.

If
we fail to become and remain profitable and to generate positive cash flow it will affect our ability to pay dividends on the ordinary shares. In addition, we may find that we have
limited or no

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ability
to raise additional capital through offerings of debt or equity securities in the capital markets in the near or medium term.

A relatively small number of customers account for a large proportion of our business. In particular, the loss of British Telecommunications plc as a customer
would have a significant adverse effect on our results.

A
relatively small number of customers account for a significant proportion of our revenues. In the three months ended December, 2003, sales to our 10 largest customers represented
approximately 47% of our total sales. Because of this concentration, adverse changes that affect only a small number of customers or customer relationships could have a significant adverse effect on
our results.

British
Telecommunications plc and its subsidiaries, ("BT"), are of particular importance to us. In the three months ended December 31, 2003, sales to BT represented approximately
18% of our total sales. The loss of BT as a customer, or any substantial reduction in orders by BT, particularly for the products and services of our Network Equipment and Network Services businesses
would have a significant adverse effect on our results.

We operate in a highly competitive and rapidly changing market and may be unable to invest sufficiently in research and development to sustain or increase sales
of our products.

Our
products are sold in markets that are characterized by rapid adoption of new technologies, many new product introductions, shortening product lifecycles, aggressive pricing practices
and evolving industry standards. If our products cease to be competitive, we would be likely to lose customers and sales, which would materially adversely affect our business, results of operations
and financial condition.

The
process for developing new products based on rapidly moving technologies for broadband fixed networks and optical networks is complex and variable. It requires innovative solutions
that are cost effective and based on accurate insights into technology and trends. Success depends on the timely and effective introduction of new products or enhancements to existing products in a
way that meets customer needs and differentiates our products from those offered by our competitors. At the same time, these new product introductions must achieve market acceptance, anticipate and
accommodate emerging industry standards and be compatible with current and competitor products. If there is an unforeseen change in one or more of the technologies affecting telecommunications, our
products may cease to be competitive.

As
part of our cost reduction effort, we have refocused and significantly reduced our spending on research and development. We are aiming to reduce overall research and development
spending, with a target spend of around 10% of total sales. We have focused more of our research and development expenditure on key products. Moreover, this focusing of expenditure requires us to
predict which product technologies will be key to our customers and their networks in the future. There is no certainty that we make the correct predictions of those needs or are able to adapt our
business quickly enough to meet those needs. However, this may not be sufficient to maintain the competitiveness of our key products or enable us to increase our market share in key market segments.
Moreover, as discussed above, we will be subject to restrictive covenants and other limitations and are likely to have difficulty obtaining additional sources of financing, which may affect our
ability to increase spending or otherwise develop our technologies effectively.

A
number of our competitors have greater financial and technological resources than we do and, therefore, are in a better position to invest in developing and acquiring proprietary
technology, to expand into new business segments and geographies and to increase their market shares. Some of our larger competitors have greater geographic reach and presence in certain regions of
the world, which enables them to service more effectively those geographies, and win more business there than we can. We may not be able to develop new products and services at the same rate, maintain
compatibility of our products with competitors' products or keep up with technology market trends. If our products and

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services
are not competitive, it is likely that we will lose customers and business, our revenues will decline and our business will be materially adversely affected.

Many of our current and planned products are highly complex and may contain defects or errors that are detected only after deployment in communications networks.
If that occurs, our reputation may be harmed.

Our
products are highly complex and some of them can only be fully tested when deployed in communications networks or with other equipment. From time to time, our products have contained
undetected defects, errors or failures. The occurrence of any defects, errors or failures could result in cancellation or orders, product returns, diversion of our resources, legal actions by our
customers or our customers' end-users and other losses to us our customers and end-users.

Rapid changes to existing regulations or technical standards or the implementation of new regulations or technical standards upon products and services not
previously regulated could be disruptive, time consuming and costly to us.

Many
of our products and services are developed in reliance upon existing regulations and technical standards, our interpretation of unfinished technical standards or the lack of such
regulations and standards. Rapid changes to existing regulations and technical standards or the implementation of new regulations and technical standards upon products and services not previously
regulated could adversely affect development, demand, sale and warranty of our products and services, thus increasing our costs and decreasing the demands for our products and services.

We are dependent on key management personnel and skilled technology workers whose departure could adversely affect our ability to develop our products and operate
our business.

The
overall headcount of our businesses has been reduced to approximately 13,000 at December 31, 2003 from 14,100 at September 30, 2003, including the impact of our
discontinued operations (North
American Access). This reduction has been due to the implementation of cost-reduction plans and disposals of assets and businesses. Included in the number of employees that have left us
are managers with many years of experience in the management and operations of our business as well as highly skilled technology workers and other employees with years of operational experience in our
business. Further workforce reductions are planned and could include key employees with valuable skills and knowledge whose departure would adversely affect our ability to continue to develop new, and
enhance existing, products.

At
the same time, the uncertainties associated with headcount reductions and our prospects generally may cause key employees to leave and otherwise increase employee and management
turnover, which may contribute to and result in inefficiencies in running our business. The loss of additional key managers and highly skilled technology workers may result in our inability to develop
new products on a timely basis, improve current technologies or operate our business efficiently.

We rely on the continued performance of third parties in relation to some of our outsourcing arrangements.

We
rely on outsourcing arrangements for information technology and the manufacture of some products and components and are considering further potential outsourcing opportunities in our
supply chain and logistics organization. If the third parties on whom we rely or will rely in relation to these outsourcing arrangements do not fulfill their obligations under such contracts, or seek
to terminate or change the terms of their contracts due to perceived uncertainty with respect to our ongoing ability to perform under such contracts, or if we do not otherwise properly manage these
relationships, such supplies or services could be severely disrupted or reduced. A significant increase in the price of key supplies or services or constraints on suppliers' capacities, particularly
during periods of significant demand, in the absence of an alternative supplier, would adversely affect our business. Moreover,

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outsourcing
initiatives ultimately may not yield the benefits we expect, and may raise product costs and delay product production and service delivery.

Measures to reduce operating costs could adversely affect relations with our employees, our suppliers and/or our partners, which could disrupt our
business.

In
order to further reduce operating costs, we continue to reduce the size of our workforce, in part through further rationalization of our activities and outsourcing initiatives. We are
also seeking to renegotiate some existing contracts with suppliers and partners in order to obtain more favorable terms. The implementation of these plans may increase demands on, and/or negatively
impact relations with, our employees, suppliers, customers and partners. That negative impact may result in a decline in employee morale, labor disruptions, strikes and/or labor-related lawsuits
against us, our suppliers, or partners. Any of these results could diminish the efficient operation of our business, disrupt services at our facilities, our suppliers or partners and inhibit the
realization of the operating cost reductions that
are fundamental to our financial objectives, which would have a material adverse effect on our business, financial condition and results of operations.

In
Europe, particularly, employees are protected by laws giving them, through local and central work councils, rights of consultation with respect to specific matters regarding their
employers' business and operations, including the downsizing or closure of facilities and employee terminations. These laws and collective bargaining agreements, to which our suppliers, partners or we
may be subject, could impair our flexibility as we continue to pursue reductions in operating expenses.



As a result of our rapid expansion in 1999 and 2000, the number of different acquired systems and the disposal of a number of businesses, the operation of our
financial reporting systems has required and will continue to require considerable personnel resources. Taken together with the demands of our restructuring, this has placed significant pressure on
the resources of our finance department. We are also in the process of implementing a number of changes to our consolidation and financial reporting systems, with a view to streamlining the existing
reporting processes. Although we currently believe that our financial reporting systems are, and without the changes referred to above would remain, fit for this purpose, the continued effectiveness
of these systems following our restructuring is dependent on a combination of the continued availability of sufficient finance team resources and any changes that are made to the financial reporting
system being successfully implemented.



The interaction of poor equity markets and low interest rates over the last few years has had a significant negative impact on the funded status of, and
liabilities under, our defined benefit pension plans and contribution obligations under such plans. We either sponsor such plans or are exposed to liabilities with respect to plans sponsored by
affiliates or former affiliates. It is possible that unless equity markets and/or interest rates improve, such obligations may require us and/or our affiliate sponsoring companies to those plans to
make additional contributions. Likewise, changes in the statement of investment principles of the GEC 1972 Pension Plan, or U.K. plan, the actuarial assumptions employed in conjunction with any such
plans or legislation could also result in a need for us and/or our affiliates to make additional contributions to such plans.

If
the U.K. plan is wound up, it is unlikely that it will have sufficient assets to discharge in full all liabilities, calculated on a winding-up rather than an
on-going basis. No plans have been made to wind up the U.K. plan but should such a decision be made, we would be required to make good any statutory debt. If a statutory debt were to
arise, the size of the debt could have a materially detrimental effect on our resources. The significance of the potential detrimental effect should be seen against our estimate that, as at
September 30, 2003, the value of the U.K. plan's assets was £2.2 billion and the

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value
of its liabilities was £2.4 billion. There is no guarantee that the value of the U.K. plan's assets will not deteriorate nor that legislation will not be introduced to oblige
employers to make further contributions to pension plans which are not fully funded on a specified basis which is stricter than that required by current legislation. In its Green Paper published on
December 17, 2002, the U.K. Government has said that it is considering replacing the statutory minimum funding requirement with a scheme-specific minimum funding level, which could be higher.

In
the United States Marconi Corporation plc was required in March 2003 to enter into an agreement with the Pension Benefit Guaranty Corporation or PBGC, an entity created under
U.S. law that insures to an extent benefits under U.S. defined benefit plans ("PBGC Agreement"). This agreement was entered into by reason of our Financial Restructuring of 19 May 2003. Under
this agreement Marconi is required to cause U.S.$2.25 million to be contributed at the end of each calendar quarter to the two U.S. defined benefit plans maintained by Marconi affiliates in the
United States. Marconi is also required to cause the annual normal cost associated with the continuation of benefits to be contributed to the plans. For the calendar year 2003 these additional normal
costs and other amounts required to be contributed by virtue of the agreement with the PBGC (other than amounts required to be contributed by reason of the sale of a business unit) are anticipated to
be U.S.$10 million to the U.S. Marconi defined benefit plans. Based on estimates determined as of October 1, 2003 one of the U.S. plans was underfunded by U.S.$14.2 million and
the other U.S. plan was underfunded by U.S.$17.3 million on a FAS 87 basis. Further the U.S. Congress is considering amending U.S. law governing defined benefit plan contribution obligations to
increase plan sponsor funding obligations commencing at some point in the future. The various funding obligations referred to above will continue with respect to a plan until the earlier of
(1) the date all the liabilities of the plans is assumed by another entity, or (2) the date, not less than 5 years after March 2003, on which Marconi's debt rating is rated
BBB by Standard and Poor's and Baa2 by Moody's or (3) the date, not less than 5 years after March 2003, on which the plan is funded on a termination basis for a period of 2 plan
years. These contribution obligations and the underfunding of the U.S. defined benefit plans may have an adverse affect on our business, results of operations and financial condition.

If
we sell business units and the purchaser of the business unit does not assume the defined benefit plan liability associated with the business unit, we are required under the PBGC
Agreement to contribute to each of our two U.S. defined benefit plans an amount equal to the estimated plan under funding on a termination basis for current and former employees of the sold business
unit. In such a case if the pension liability associated with the business unit is not satisfied by the purchase of annuities from an insurance company, we will continue to be obligated to fund such
liability to the extent required under U.S. law. The completion of the sale of North American Access will leave a liability of £8 million.

If we fail to protect our intellectual property rights our business and prospects may be harmed.

Intellectual
properties, such as patents, are vital to our business and developing new products and technology that are unique to us is critical to our success. We have numerous patents
and numerous pending patents, but we cannot predict whether any patents, issued or pending, will provide us with any competitive advantage, or will be challenged by third parties. Moreover, our
competitors may already have applied for patents that, once issued, could prevail over our patent rights or otherwise limit our ability to sell our products. Our competitors also may attempt to design
around our patents or copy or otherwise obtain and use our proprietary technology. In addition, patent applications that we have currently pending may not be granted. If we do not receive the patents
we seek, or if other problems arise with our intellectual property, our competitiveness could be significantly impaired, which would limit our future revenues and harm our prospects.

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There is a risk that third party intellectual property rights will be asserted against us.

We
rely on patents, trademarks, trade secrets, design rights, copyrights, confidentiality provisions and licensing agreements to establish and protect our proprietary technology and to
protect against claims from others. Infringement claims have been and may continue to be asserted against us or against our customers in connection with their use of our systems and products. We
cannot ensure the outcome of any such claims and, should litigation arise, such litigation could be costly and time-consuming to resolve and could result in the suspension of the
manufacture of the products utilizing the relevant intellectual property. In each case, our operating results and financial condition could be materially affected.

The adverse resolution of litigation against us could negatively impact our business.

We
are currently a defendant in a number of lawsuits, are and may in the future be subject to other litigation arising in the normal course of our business. Litigation may be time
consuming, expensive and distracting from the conduct of our business and the outcome of litigation is difficult to predict. The adverse resolution of some lawsuits could have a material adverse
effect on our business, results of operations and financial condition.

The ringfencing of our U.S. operations will give rise to operational and financial inefficiencies and other costs, which may adversely affect our business and the
market price of our ordinary shares.

Some
of our U.S. businesses have been contractually separated or "ring-fenced" from the rest of our group in connection with the restructuring. This U.S. ringfencing may have
significant implications for you.

The
covenants in the indentures governing our outstanding Notes regulate the type of financial, operational and other dealings that the non-ringfenced entities can have with
the ringfenced entities. These covenants also require us to separate the North American Access business, BBRS business and OPP business into separate subsidiaries within the U.S. ringfencing no later
than May 19, 2005. Moreover, the non-ringfenced entities are generally prohibited from providing funding for any of the ringfenced entities and, following the separation of the
three principal businesses within the U.S. ringfencing, the North American Access business, BBRS business and OPP business will generally be prohibited from providing funding to each other. The
ringfenced entities have entered into various agreements with the non-ringfenced entities necessary to ensure that those dealings that they are permitted to engage in with each other will
be provided in the ordinary course of business on an arm's-length basis or otherwise as permitted by the covenants in those indentures. The arrangements for the provision of such services may lead to
higher costs for us as a whole, which may affect our results of operations.

In
addition to the foregoing, the operational and financial inefficiencies and other costs associated with the U.S. ringfencing arrangements could have an adverse effect on our business
and on the market price of the ordinary shares.

The funding status of our U.S. pension plans and the agreement entered into by us with the Pension Benefit Guaranty Corporation with respect to those plans could
delay or adversely affect the terms of the sale of our U.S. businesses.

The
funding status of some tax-qualified defined benefit plans subject to the regulation of the Pension Benefit Guaranty Corporation, or PBGC, in the United States could
result in action being taken by the PBGC that might delay or otherwise adversely affect the sale of our U.S. businesses or assets used therein, or the net proceeds realized therefrom. The likelihood
of that type of action will depend in part on the funded status of those plans at the time of any such sale, the creditworthiness of the purchaser following that sale and the extent to which the
purchaser assumes pension liabilities in any such sale. Although we have entered into a memorandum of understanding with the PBGC with a

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view
to making an adverse action less likely, under this memorandum of understanding specified conditions must be satisfied in connection with any such sale. To the extent that these matters give rise
to any delay or other adverse consequences with respect to the sale of our U.S. businesses, holders of ordinary shares could be adversely affected.

We are subject to environmental, health and safety laws, which could be costly and could restrict our future operations.

Our
operations are subject to a wide range of environmental, health and safety laws, including laws relating to the use, disposal, clean up of, and human exposure to, hazardous
substances. Although we believe our reserves are adequate to cover our environmental liabilities, factors such as the discovery of additional contaminants, the extent or remediation and compliance
expenses, and the imposition of additional clean up obligations and other sites could cause our capital expenditure and other expenses relating to the remediation activities to exceed the amount
reflected in our environmental reserve and adversely affect our results of operations or cash flows. Compliance with existing or future environmental, health and safety laws could subject us to future
liabilities, cause the suspension of production, restrict our ability to expand facilities, require us to acquire costly pollution control equipment or incur other significant expenses or modify
manufacturing processes.



We do not anticipate that we will pay dividends on the ordinary shares in the foreseeable future. Moreover, even if we have distributable reserves and become cash
flow positive and profitable and so are in a position to pay dividends, the indentures governing our outstanding Notes significantly restrict our ability to pay dividends. In connection with our
Financial Restructuring and associated capital reduction we were required to create a special reserve that also restricts our ability to pay dividends. In addition, Marconi Corporation plc is a
holding company and is wholly dependent on receiving funds from its subsidiaries to pay dividends. Some institutional investors may only invest in dividend-paying equity securities or may operate
under other restrictions that may prohibit or limit their ability to invest in the ordinary shares. This may reduce the demand for the ordinary shares until we are able to pay dividends in respect of
the ordinary shares, which may in turn adversely affect the price of the ordinary shares in the market.



We currently intend to repay any principal amount outstanding in respect of our outstanding Notes at their maturity in part from cash generated by our Group. Our
ability to generate significant positive cash flow in the future is subject to significant risks and uncertainties. If we are unable to generate sufficient cash to allow us to repay the Notes at
maturity, we would need to obtain other financing for this purpose. However, also as discussed above, our ability to obtain such financing may be extremely limited. Accordingly, we cannot assure you
that we will be able to repay any of the Notes at their maturity.

Our Notes are subject to a redemption obligation at a premium upon a change of control, which may discourage potential bidders.

Upon
the occurrence of specific kinds of change of control or merger events, we will be required to offer to repurchase all of our outstanding Notes at the greater of 110% of their
aggregate principal amount or a make-whole amount based on 50 basis points above the yield on U.S. treasuries of similar maturity plus, in each case, accrued and unpaid interest. This
obligation to redeem the Notes at a premium could have the effect of deterring third parties who might otherwise offer to acquire a controlling interest in us or could adversely affect the terms on
which any such offer is made. This redemption obligation may accordingly have an adverse effect on the market price of our shares and

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could
deprive shareholders of an opportunity to receive a premium for their shares upon a change of control.

Pre-emptive rights for non-U.K. holders of ordinary shares may not be available.

In
the case of, amongst other things, an increase of our share capital, existing shareholders are entitled to pre-emptive rights pursuant to the U.K. Companies Act 1985 and
our articles of association, unless waived by a resolution of the shareholders at a general meeting or in the circumstances stated in our articles of association. Even where pre-emptive
rights apply, holders of the ordinary shares in the United States, South Africa, Australia, Canada and other jurisdictions outside the United Kingdom may in practice not be able to exercise
pre-emptive rights in respect of their ordinary shares unless we decide to comply with applicable local laws and regulations and, in the case of holders of the ordinary shares in the
United States, a registration statement under the U.S. Securities Act of 1933 is effective with respect to such rights, or an exemption from the registration requirements thereunder is available. We
intend to evaluate at the time of any pre-emptive rights offering the costs and potential liabilities associated with any registration statement and compliance with other applicable local
laws and regulations, as well as the indirect benefits to us of thereby enabling or facilitating the exercise by holders of the ordinary shares in the United States and such other jurisdictions of
their pre-emptive rights for new securities in respect of their ordinary shares. In addition, we will consider any other factors we consider appropriate at the time, and then make a
decision as to how to proceed and whether to file a registration statement or comply with those other applicable local laws and regulations. We cannot assure you that any registration statement
with respect to the securities offered under a pre-emptive issue would be filed or any of those other local laws and regulations would be complied with to enable the exercise of that
holder's pre-emptive rights.

Item 3.    Quantitative and Qualitative Disclosure About Market Risk

Market risk represents the risk of loss that may impact our consolidated financial statements due to adverse changes in financial market prices and rates. Our
market risk exposure is primarily a result of fluctuations in interest rates and foreign exchange rates.

Financial instruments

Our treasury activities are coordinated by our treasury function, which operates in accordance with policies and procedures approved by our Board of Directors. It
does not operate as a profit center. Treasury advises operational management on treasury matters and undertakes all derivative transactions, subject to the constraints outlined below. All treasury
related transactions undertaken by the our operating businesses are required to be in accordance with guidelines laid down by our central treasury function and comply with the group risk management
policies.

Under
the terms of the new Senior and Junior Notes that we issued in our Financial Restructuring, we are permitted to use foreign exchange forwards and options to hedge trade receivables
and payables, or exposures arising from the new Senior and Junior Notes. No other derivatives are permitted.

It
is our policy that there is no trading in financial instruments, and all financial instruments are used for the purpose of financing or hedging identified exposures of the Group.

Interest rate risk

Our interest expense is exposed to interest rate movements in our floating rate debt, cash and investments. We are principally exposed to changes in
short-term interest rates in pounds sterling and U.S. dollars. Our Senior Notes and Junior Notes bear fixed rates of interest. Interest on the Senior Notes is charged at 8% per annum, and
Interest on the Junior Notes is charged at 10% per annum

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interest
if paid in cash, or 12% per annum if paid in kind through the issuance of additional Junior Notes. As at December 31, 2003, 97% of our borrowings were at fixed rates of interest.
Consequently, the exposure of our results to interest rates will be to changes in the interest rates earned on our short-term bank deposits. Under the terms of the Notes, no hedging of
this risk is permitted.

As
a result, during the three and nine months ended December 31, 2003, a 1% increase in interest rates would have led to a £2 million and
£6 million increase in interest income, respectively, and no impact on interest expense.

Foreign exchange risk

We are a global communications company, and as such we conduct a significant portion of our business activities outside the United Kingdom in currencies other
than sterling. Our principal exchange rate exposures are to movements in foreign exchange rates against sterling for both trading transactions and the translation of net assets and the profit and loss
accounts of overseas subsidiaries. Our main trading currencies are the U.S. dollar, sterling and the euro.

We
have overseas subsidiaries that earn profits or incur losses in their local currencies. It is not our policy to use financial instruments to hedge the translation value of our net
overseas assets.

Following
the Financial Restructuring, the majority of our debt (93% as at December 31, 2003) is denominated in U.S. dollars. It is not our intention to hedge this risk using
financial instruments due to the potential cash flow impact of any hedging of our exposures. However, we take this U.S. dollar exposure into account when determining the appropriate currency mix of
our cash balances. As at December 31, 2003, £421 million of our cash balances were denominated in U.S. dollars, £103 million were denominated in sterling,
£120 million were denominated in euro and £43 million in other currencies. As at December 31, 2003, we held approximately
€85 million (£60 million) of cash denominated in euro within the U.K. as collateral against bonding facilities and to meet potential cash requirements in the
eurozone. Since this cash is designated for euro-denominated cash flow requirements it is not treated as a hedge for accounting purposes, and gains and losses on retranslation of the cash
into sterling are taken to other income/(expense).

If
the pound sterling had strengthened such that the average exchange rates used in the translation of our overseas earnings changed by 10%, our reported loss from continuing operations
would have increased by 2.4% in the three months ended December 2003 and reduced by 3.6% in the nine months ended December 31, 2003.

Item 4.    Controls and Procedures



Within the 90 days prior to the filing date of this quarterly report, we performed an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness and design and operation of our disclosure controls and procedures. Based upon that evaluation,
which will be used as input for further improvement actions, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective (as defined in
Rule 13a-14(c) under the Securities Exchange Act of 1934).



Since the date of the previously mentioned evaluation, there have been no significant changes in our internal controls or in other factors that could
significantly affect the controls. Therefore, no corrective actions were taken.

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Part II.    Other Information

Item 1.    Legal Proceedings

In
our Form 20-F for the year ended March 31, 2003, we made disclosure of the lawsuit filed by Bell Communications Research. Inc, now known as Telcordia
Technologies Inc., or Telcordia. In our Form 10-Q filing for the six months ended September 30, 2003, we reported that on September 29, 2003, the district court
held a hearing in relation to that lawsuit to clarify its previous claim construction ruling. Subsequent to the hearing the district court issued an opinion clarifying its original claim construction
in a manner that will permit Telcordia to maintain its claim for infringement of the remaining patent. In the three months to December 31, 2003, we have reviewed our defence to this case and on
January 5, 2004, entered into mediation with Telcordia for settlement. On January 12, 2004 we entered into a legally binding memorandum of understanding with Telcordia wherein we agreed
to pay Telcordia U.S.$23.5 million in exchange for a license to Telcordia's ATM patent portfolio and as full and final settlement of all outstanding claims. We are in the process of negotiating
formal definitive agreements. We currently expect to make a payment of U.S.$14 million before March 31, 2004 and the remaining balance over the next three years. As a consequence of this
claim, we have reassessed our provisioning level and recorded a charge of £5 million to our operating results in the three months to December 31, 2003.

We
are subject to the legal proceedings set out in Part I, Item 8 of our annual report on Form 20-F for the year ended March 31, 2003. Other than as
disclosed in the paragraph above there have been no material developments to these legal proceedings in the nine months ended December 31, 2003 nor has there been a material new legal
proceeding that has arisen in this period.

We
are also subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, we do not
expect the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

Item 6.    Exhibits and Reports on Form 8-K

Exhibits
and Reports on Form 8-K

During
the quarter ended December 31, 2003 and up until the date of this report, the Company filed the following reports on Form 8-K:

Current
Report on Form 8-K dated October 2, 2003 related to it's listing on NASDAQ.

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Current
Report on Form 8-K dated October 2, 2003 related to confirmation of changes to the Board.

Current
Report on Form 8-K dated October 3, 2003 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated October 3, 2003 related to the partial redemption of the Company's 10% guaranteed junior secured notes due 2008.

Current
Report on Form 8-K dated October 7, 2003 related to its Industry Analyst event.

Current
Report on Form 8-K dated October 10, 2003 related to the outsourcing of its microwave product manufacturing to Elcoteq Network Corporation in Germany.

Current
Report on Form 8-K dated October 10, 2003 related to the parameters of the partial redemption of the Company's 10% guaranteed junior secured notes due
2008 announced on October 3, 2003.

Current
Report on Form 8-K dated October 15, 2003 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated October 23, 2003 related to its trading update for the three months ended September 30, 2003.

Current
Report on Form 8-K dated October 27, 2003 related to the date of publication of its interim results for the three and six months ended
September 30, 2003 on November 13, 2003.

Current
Report on Form 8-K dated October 29, 2003 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated October 30, 2003 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated November 6, 2003 related to the delivery of the first units of its new optical multiservice metro platform.

Current
Report on Form 8-K dated November 12, 2003 related to the sale of its interest in the Confirmant Joint Venture.

Current
Report on Form 8-K dated November 13, 2003 related to publication of its interim results for the three and six months ended September 30, 2003.

Current
Report on Form 8-K dated November 19, 2003 related to notes repurchase and notice of the fourth partial redemption of the 10% Guaranteed Junior Secured
Notes due 2008.

Current
Report on Form 8-K dated November 28, 2003 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated December 1, 2003 related to the partial redemption of the 10% Guaranteed Junior Secured Notes due 2008.

Current
Report on Form 8-K dated December 23, 2003 related to notes repurchase and notice of the fifth partial redemption of the 10% Guaranteed Junior Secured
Notes due 2008.

Current
Report on Form 8-K dated December 30, 2003 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated January 5, 2004 related to the sale of the North American Access Business Unit agreement signed.

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Current
Report on Form 8-K dated January 6, 2004 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated January 9, 2004 related to the partial redemption of the 10% Guaranteed Junior Secured Notes due 2008.

Current
Report on Form 8-K dated January 9, 2004 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated January 12, 2004 related to supplying Teliasonera with new flexible next generation network platform.

Current
Report on Form 8-K dated January 14, 2004 related to signing a new support contract expansion with BT.

Current
Report on Form 8-K dated January 16, 2004 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated January 20, 2004 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated January 22, 2004 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated January 26, 2004 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated January 26, 2004 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated January 26, 2004 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated January 27, 2004 related to its Trading Update for the three months ended December 31, 2003.

Current
Report on Form 8-K dated January 29, 2004 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated January 30, 2004 related to a notifiable interest in the Company.

Current
Report on Form 8-K dated January 30, 2004 related to an application for an additional block listing.

Current
Report on Form 8-K dated January 30, 2004 related to an application for an additional block listing.

Current
Report on Form 8-K dated February 2, 2004 related to the cancellation of previously repurchased 10% Guaranteed Junior Secured Notes due 2008.

Current
Report on Form 8-K dated February 2, 2004 related to an application for an additional block listing.

Current
Report on Form 8-K dated February 3, 2004 related to an application for an additional block listing.

Current
Report on Form 8-K dated February 4, 2004 related to an application for an additional block listing.

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Current
Report on Form 8-K dated February 5, 2004 related to an application for an additional block listing.

Current
Report on Form 8-K dated February 6, 2004 related to an application for an additional block listing.

Current
Report on Form 8-K dated February 9, 2004 related to an application for an additional block listing.

Current
Report on Form 8-K dated February 10, 2004 related to the award of a new frame agreement by Telecom Italia.

Current
Report on Form 8-K dated February 10, 2004 related to an application for an additional block listing.

Current
Report on Form 8-K dated February 11, 2004 related to an application for an additional block listing.

Current
Report on Form 8-K dated February 11, 2004 related to the partial redemption of the 10% Guaranteed Junior Secured Notes due 2008.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                        |  | MARCONI CORPORATION PLC
|----------------------- |  | -----------------------
|Date: February 11, 2004 |  | By:                    

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