For the first quarter ending June 30, the UK carrier posted net income of GBP 374m ($655.7m), up from GBP 302m ($529m) in the year ago quarter. The carrier also posted a 20% rise in pre-tax profits in the first quarter to GBP 511m ($896m).

Meanwhile, sales were up 5% at GBP 4.78bn ($8.38bn), from GBP 4.56bn ($8.01bn) in the year ago quarter. The increase was mostly due to the 48% rise in new wave revenues (broadband, internet and mobile services), as well as acquisitions and a lower-than-expected interest charge. However, stripping out a contribution from newly-acquired network services group Infonet Services Corp (November 2004) and the buyout of Italian telecoms group Albacom (December 2004), revenues rose by just 3%.

Analysts had forecast underlying pretax profit of GBP 460m ($807m) on sales of GBP 4.72bn ($8.28bn) on average, according to a range of estimates provided by BT.

This has been a great first quarter and builds on the momentum we have seen gathering for more than a year, Chief Executive Ben Verwaayen said on Thursday in a statement.

However, it has not been all plain sailing. Core earnings before interest, tax, depreciation and amortization (EBITDA) slipped 2% to GBP 1.36bn ($2.38bn) in the quarter. This, coupled with a 1.4% slip in BT’s share of the consumer market to 61%, and a 0.3% slip in its share of the business market to 41%, meant that shares in the carrier fell.

On the London Stock Exchange, BT’s shares (which have climbed about 16% since it published annual results in May), fell 2.55% to 229 pence ($4.01) by 5pm BST on Thursday.

The rise in new wave sales, which grew to GBP 1.3bn ($2.43bn), continues to be the salvation of the carrier, after it moved into new areas in order to counter the decline in its traditional fixed-line business, and the lack of a mobile unit.

Indeed, over the past few years BT has transformed itself from a lumbering carrier into an innovative and proactive telecoms operator. The 21CN project is just one of a number of strategies the UK telecom operator is implementing to take up the slack from its declining legacy business.

This transformation is mostly due to the fact that it cannot rely on a mobile operation to act as a growth engine. Unfortunately for BT, it fell victim to the prevailing financial wisdom of the time and spun out its mobile arm BT Cellnet in 2001 to pay off debts. This deprived it of a growing revenue stream that could have been used to offset the decline in its voice services business. Indeed, during the quarter, total revenues from its traditional business fell by 6% on the back of intense competition, regulatory price cuts, and customers upgrading their network services.

Traditional consumer revenue fell by 11%, while 12 month average revenues per consumer household slipped by GBP 2 ($3.50) to GBP 254 ($445), compared to the previous quarter.

One of the main areas where BT continues to capitalize on is broadband. It has to be said BT was pretty late getting on the broadband bandwagon, but they quickly realized its potential and started to heavily invest and promote its broadband offering. This means it now has approximately 5.6 million broadband customers in the UK using its high-speed internet connections.

BT also managed to reduce net debt by a healthy 4% to GBP 8.12bn ($14.25bn), in marked contrast to its heavily indebted European rivals such as France Telecom SA and Deutsche Telkom AG.