THE TUESDAY INTERVIEW: Peter Bonfield; Cracking the code for the mother of all mergers

The chief executive of BT must pick a careful path in an industry that is converging at frightening speed

Sir Peter Bonfield, the chief executive of BT, knows a thing or two about secret codes.

His father was part of the small team of engineers that cracked the German Enigma code in the last war, a breakthrough that helped considerably towards the Allied victory.

This time he is on the receiving end. Despite all BT's efforts to keep its talks with Cable & Wireless confidential, the secret has been well and truly blown open and the two companies find themselves negotiating their pounds 33bn merger in the glare of intense public scrutiny.

If Sir Peter was looking for a challenge when he decided to quit after 10 years at the helm of computer firm ICL and join BT at the start of this year then he could scarcely have picked a bigger one. The immediate task is to construct a merger with C&W that satisfies poiticians, regulators and shareholders alike. That is daunting enough. Beyond that lies the distinct possibility of a referral to the Monopolies and Mergers Commission by the telecoms regulator, Don Cruickshank. And beyond that lies the challenge of adapting to an industry that is converging at a frightening pace and throwing up ever more powerful competitors as the lines blur between telephony, computing and entertainment.

Those who know him believe he is equal to the challenge. During his time at ICL he gained a reputation as a determined and sometimes ruthless manager with a taste for discipline that he himself suggests resulted from his early education at a convent school.

"His easy-going and bantering manner hides an iron will when it comes to business matters," says one former colleague. "But he is scrupulously fair and very straight and open. He also has a dead-pan sense of humour. He is very charming in a curious sort of way."

Talking about Bonfield the man does not come easily to Sir Peter who much prefers to concentrate on BT the company.

He will not talk about Cable & Wireless but there is no disguising how strategically important its 57 per cent stake in Hongkong Teleom would be to BT's global ambitions.

"In 20 to 30 years we want to be among the most successful global telecoms companies and to achieve that we will need to be much bigger in Asia Pacific," he says.

Indeed so important is the region that Sir Peter held lengthy discussions with Takuma Yamamoto, chairman of ICL's Japanese parent company Fujitsu, to ensure he was leaving for BT with its blessing.

"The parting was very amicable and needed to be because the Japanese market and the Far East market are going to be important to BT and the people there will only do business with people they trust," he says.

Supposing a deal can be clinched Sir Peter and BT's next challenge will be to obtain agreement with Oftel on two contentious issues - a new pricing regime to take effect next year and Mr Cruickshank's proposals to take sweeping new powers to curb what he considers anti-competitive behaviour by BT. Either dispute could land up before the MMC.

"We would like to reach agrement with the regulator under the current consultation ," Sir Peter says.

However, BT will not settle at any price simply to avoid a long MMC inquiry that will be draining on management time.

Sir Peter's argument is that if the new price cap is set too tightly it will prevent competitors entering the telecoms market and thereby defeat the regulator's objective. "If you force very low returns on capital employed, a lot of people would worry about investing in such an industry.

"Competition is good for the industry but it must be sustainable. If the risks are high and the return is low that is bad for the overall industry."

Coming in from outside BT as Sir Peter does, he senses that much has changed since privatisation. "BT is at a very interesting stage now it is being market-driven whereas 10 years ago it was mostly technology-driven and a single product.

"It still needs to be more responsive. It can be. In the next few years it will be. The artificial distinction between fixed and cellular will disappear over the next 5-10 years; it would be useful to have as a way forward, as part of our strategy, to integrate these together. It is an important issue for us."

The new BT boss is an engineer, joining Texas Instruments after graduating from Loughborough University. With TI in Texas, he met his wife, Josephine, and developed his love of American life to which he is determined to return.

"My long-term personal goal has not changed. I enjoy the States and have strong links there. If you ask me whether I imagine retiring under a palm tree the answer is yes. In the meantime I have to earn a living."

Sir Peter is a fitness fanatic who found to his disgust when he arrived at BT that the gym did not open until 7am. Instead he decided to squat during the week at the RAC club where the gym opens at six.

Since then, his time has been taken up by a rather larger test of strength and one that the telecoms industry and the financial markets are eagerly waiting to see him and the BT chairman, Sir Iain Vallance, pull off - the largest merger in British corporate history.