For the first quarter ending June, BT posted net income of 464m pounds ($866m), up from 374m pounds ($698m) a year earlier. Sales rose 2.8% to 4.86bn pounds ($9.07bn) in line with market expectations.

This is a strong all round performance to start the financial year, said chief executive Ben Verwaayen. Revenue has increased for 10 consecutive quarters.

The results showed that BT’s fixed-line revenue declined by 4%, reflecting recent trends including regulatory intervention, competition, price reduction, and the movement of customers to new-wave revenues, BT said.

Unlike other European incumbents, BT is unique in that it is competing in a highly competitive market with no mobile operation to act as a growth engine. This was because BT heeded the prevailing financial wisdom of the time and in November 2001 spun off BT Cellnet (later known as O2 Plc and now owned by Telefonica SA) in order to reduce its debt.

This debt burden is now sitting at 7.72bn pounds ($14.39bn), up slightly from 7.53bn pounds ($14.23bn) at the end of March, but down from 8.1bn pounds ($15bn) at the end of last December.

The lack of a mobile arm has meant that BT has had to work hard to transform itself from a lumbering telecoms giant into one of the most dynamic fixed-line carriers in the world. Part of this transformation has been down to its creation of a new-wave (broadband, IT services, and mobility) revenue stream, which for the last couple of years has provided the majority of BT’s growth.

During the first quarter, BT said that new-wave revenue rose 18% to 1.64bn pounds ($3.05bn), representing 34% of total group sales. A hugely important part of this new revenue stream is broadband.

During the first quarter BT added 535,000 new customers, down from 800,000 new customers in the previous quarter. This meant that BT’s market share for net broadband additions was 30% in the first quarter, down from 31% in the previous quarter. Net new retail broadband customers dropped from an average of 250,000 in previous quarters to only 158,000. On the plus side, BT said it had 8.7 million broadband end users as of June 30.

There is little doubt that BT is coming under increasing pressure from the likes of Orange SA, the Carphone Warehouse Plc, and British Sky Broadcasting Group Plc, all of which are now touting their own free broadband packages.

There are concerns that these new broadband packages will make an impact on BT’s core broadband market, and the market is worried that BT will have to drop its broadband prices in order to compete, which will also affect profitability. Despite these worries, shares in BT rose 0.1% to 237.75 pence ($4.43) on the London Stock Exchange following the results announcement.

Meanwhile, another vital cog in BT’s new-wave revenues, IT services, remains healthy, with the carrier posting a 9% increase in networked IT service revenue to 981m pounds ($1.83bn). It also signed 1bn pounds ($1.86bn) worth of networked IT services contract wins during the quarter. More than 20% of the order intake was again generated outside the UK.

The main services arm of the UK carrier, BT Global Services, posted an operating profit of 63m pounds ($117m), down from 67m pounds ($125m), on revenue up 4% at 2.155bn pounds ($4.01bn). BT gave a positive update on its progress with the high-profile NHS modernization project, and said it is ahead of target for the roll-out of the NHS’s N3 broadband network, which it said will be the largest VPN in Europe.

The customer-facing unit, BT Retail posted a 19% rise in operating profit to 140m pounds ($261m), but a 2% decline in revenue to 2.06bn pounds ($3.85bn). BT Wholesale posted a 3% decline in operating profit to 192m pounds ($358m) on sales up 2% at 1.84bn pounds ($3.44bn). BT Openreach, the unit responsible for the last-mile connection from the telephone exchange to the white socket box in the home or businesses, posted a 8% decline in operating profit to 295m pounds ($550m) on sales down 3% at 1.25bn pounds ($2.34bn).