BT is pregnant with possibilities but still some way from delivering

Ben Verwaayen, the chief executive of BT Group, has one, unequivocal message. "The BT you have known is no longer there. It is now a different company with a different profile. It is a company much more based on the growth of earnings per share and dividends."

Ben Verwaayen, the chief executive of BT Group, has one, unequivocal message. "The BT you have known is no longer there. It is now a different company with a different profile. It is a company much more based on the growth of earnings per share and dividends."

In the past, growth and BT have not always gone hand in hand. But these days BT has a new business at its centre which, after a three-year gestation period, finally came blinking into the world yesterday when Mr Verwaayen played the proud father routine to the massed ranks of analysts in the auditorium in BT Centre, near St Paul's Cathedral.

Like student doctors gathered to watch a particularly tricky delivery, the City's teenage scribblers got to see much more clearly what Mr Verwaayen has been nurturing all this time. When he arrived in April 2002, BT was saddled with £13.7bn of debt and a strategy in tatters after the technology boom had bust. Its traditional fixed-line telephony business was in decline.

Three years on, its debt is down to £7.8bn, where it will remain for the foreseeable future, the company is trumpeting a new strategy and the decline in its legacy business is much less painful thanks to the palliatives of lower costs, better margins, more attractive pricing and aggressive advertising campaigns.

At yesterday's presentation, Mr Verwaayen announced results for the year to 31 March which showed that group turnover, even allowing for the decline in fixed-line calls, was up 2 per cent to £18.6bn and pre-tax profit up 4 per cent at £2.1bn. Mr Verwaayen's favourite measures of earnings per share (up 7 per cent at 18.1p) and dividend per share (up 22 per cent at 10.4p) helped the company's share price to a healthy 6.3 per cent rise by the end of trading as the City reflected on Mr Verwaayen's performance.

The new BT, positioned very much as the driver of future growth, is basically three things: information and communications technology (ICT) which is big telecoms solutions contracts for businesses and the public sector; broadband; and mobile communications.

Together, these three have sales of £4.5bn which, as Mr Verwaayen was quick to point out, is already bigger than such glamorous FTSE 100 media stocks as BSkyB. However, unlike Rupert Murdoch's satellite broadcaster, new BT is growing at a rate of 32 per cent a year. BSkyB's last annual results showed it had sales of £3.6bn, growing at 15 per cent a year.

"This strategy is about convergence: convergence between communications and information technology, between fixed and mobile telephony and there is something new - the convergence between networks and services," Mr Verwaayen said.

But what does this mean in practice and will Mr Verwaayen's new creation really transform BT's profitability in the long term?

In essence, Mr Verwaayen is trying to transform BT from a utility into a growth company. Broadband internet access is at the heart of that. Here, BT's revenues rose last year from £491m to £930m, an 89.4 per cent increase. Actual connections through BT, which include BT's own retail customers and those of other internet service providers that piggy-back on BT's core network, reached 5 million. BT Retail itself notched up 1.7 million broadband subscribers, an increase of 81 per cent, although at a 29 per cent market share this still represents a disappointment for some analysts.

Anyway, revenues and volumes are pretty healthy but what about profits? Here things are still a bit hazy but Hanif Lalani, BT's new finance director, said broadband was profitable last year but only before the main costs, such as interest, tax, depreciation and amortisation, were deducted.

But real profits will come soon, reckons Mr Verwaayen, as his broadband business becomes less about connecting people and more about selling them content and services using these connections. This is the convergence of networks and services in his strategy spiel.

BT's broadband customers can already watch live World Cup qualifying matches for £6.86 or download recorded matches for £4.79. This summer you can watch 52 minutes of Wimbledon replays or highlights, of your choice, for 50p. There are the latest Hollywood blockbusters available on demand and a whole raft of transactional services made possible by BT's Click&Buy and Buynet online payment system that is already handling 17 million credit card transactions. All this, BT promises, will help transform the way people consume and do business while generating additional revenues for the company, although it refused to say how it shares revenues with content providers.

ICT revenues have increased from £2.5bn to £3bn thanks to new contract wins with a value of £18bn. These include large, high-profile contracts with Reuters, Bristol-Myers Squibb, the NHS and the Ministry of Defence. A lot of this business is delivered through BT's Global Services division. It has been building up a head of steam on profitability after several years of losses. Last year it made a £7m profit following a £105m loss but in the final quarter profitability accelerated to £47m, completing a £500m turnaround from the losses incurred just four years ago. The contracts typically take a couple of years to turn a profit, because BT writes off all the associated costs up front, but in subsequent years they represent a steady stream of earnings. And it's not just big companies BT is targeting. It has 120 contracts worth £1m-£5m.

Mobility is the third leg of new BT. Its turnover doubled to £205m but is some way from profitability. Mr Verwaayen is putting his faith in the BT brand to get it back into mobile phones - it was forced to demerge O ₂ to appease shareholders in 2001. But it is also about to launch Bluephone, another "convergence" story that combines a mobile and fixed-line service on one bill, charges the customer the cheapest rate whether they are at home or out and about. However neat it sounds, the sceptics are not preparing for fireworks.

Mike Cansfield, an analyst at Ovum, said: "This initiative should add more to BT's mobility revenue stream, but we anticipate this will be a slow burner."

At £4.5bn, new BT accounts for 24 per cent of group sales. But there are threats, most notably the growing global power emerging in the US through the proposed mergers of SBC with AT&T and MCI with Verizon. These companies pose a huge potential threat to BT's ICT business. Broadband could still end up being little more than a utility if the intense competitiveness of online distribution erodes the profitability of supplying content and services, while mobile is already one of the most competitive industries in Britain.

But Mr Verwaayen has created momentum in BT which was lacking when he arrived. That said, this year will prove crucial for him. So far he has been allowed the time and space by shareholders to reshape BT. They are content enough with progress but new BT, over the next 12-18 months, needs to do more to prove it can deliver serious profit growth before they will be totally comfortable with Mr Verwaayen's new baby.