BT's chief executive Sir Peter Bonfield has staked his reputation on proposals to dig the company out of its current financial hole by early next year. But before his reforms have even begun to bite, some critics are saying that they are not only well overdue, but do not go far enough.

The restructure, which Bonfield describes as "radical and unprecedented", will involve disposing of some of the telco's peripheral operations, and selling shares in some of the more valuable chunks of the business.

Plans include the flotation of 25 per cent of BT Wireless, home to Cellnet and other operations in Germany, Ireland and the Netherlands, and 25 per cent of the Yell directory business. Both are scheduled to go public in the first half of next year. BT will also create a networking arm called NetCo, which will be managed independently with a view to subsequent flotation.

The supplier is also expected to build up its Ignite broadband business, so that it too can be offered to investors, and is likely to confirm plans to separate its wholesale fixed-line business, which includes switches, cables and other infrastructure, from its retail arm, which markets voice and data offerings.

This would have the advantage of freeing up the retail unit from the dead hand of regulation, which BT claims is currently stifling it somewhat.

Cutting staff levels
Bonfield has already been busy trimming away dead wood and claimed last week that BT has already exceeded targets to cut 3000 management jobs. It also intends to get rid of more than 5000 other posts by the end of the year.

His stated aim is to focus BT's operations around growth markets such as wireless, broadband and IP, and to limit operations geographically to western Europe and Japan.

He hopes that the resultant slimline, fighting-fit BT, which will operate as a group of companies under one umbrella rather than as one vertically integrated monolith, will look sweet to investors and analysts.

But the City believes that such moves have not come a moment too soon. BT's second-quarter net profit fell to £295m from £618m in the same period last year, and its share value has halved in the last 12 months and is still falling.

And problems with earnings and share price aren't even the half of it. BT's debt currently stands at about £18.7bn and one of the initial aims of the current restructuring policy is to knock about £10bn off this fearsome figure.

But in reality, the debt is far more likely to mushroom to £30bn, or even as high as £35bn, by next March, thanks to acquisitions and the cost of buying up licences in the third-generation (3G) mobile sector. With a current market capitalisation of not much more than £50bn, the company could be on shaky ground by next summer unless Bonfield's measures prove to have a marked effect.

On the ropes
At the heart of the problem, claim analysts, is not that BT made too many acquisitions or that it was reckless over the 3G auction, which it was pretty much committed to anyway, but that it is now suffering from years of being over cautious.

The analysts point out that BT has relied on its traditional business for too long and has, as a result, been slow to build IP services, for example, into the framework of its traditional activities.

Under Bonfield, it is whispered, the company has lagged behind European rivals such as Deutsche Telekom and Telefonica in selling shares in fast-growing business units to raise funds for this sort of development.

This has led to it being backed into a corner and having to take drastic action to realise some of its value. Such money will not be pumped into research and development, however, but used to cover its overdraft.

John Matthews, a telecoms analyst with research consultancy Ovum, said: "These measures are clearly aimed principally at placating the City. There are a lot of fund managers out there who have invested heavily in BT and who are now left looking awfully bad."

He also believes that the low value of the company's share price makes it a tempting takeover target. "Ironically, maybe one thing keeping the vultures away is the size of the debt," he suggested.

But financial problems are not BT's only bugbear. It also needs to expand and to compete better, especially in the mobile sector, against suppliers such as Vodafone.

The telco's consolidation has raised other questions, however. It now claims that Concert, its joint venture with US counterpart AT&T, will be the primary route for providing global communications to customers.

But Bonfield has refused to rule out selling off the unit some way down the line, which would leave BT looking inward towards the European market at a time when Deutsche Telekom and France Telecom are eyeing up the US.

Regulatory approval
Then there is the issue, yet to be touched on, of just how much of the firm's current plan will meet the approval of regulators. BT has received flak aplenty from telecoms watchdog Oftel over the last few weeks due to its policies regarding unmetered access and the local loop.

And a recent poll of UK telecoms professionals by online newswire Total Telecom revealed that about half believe that BT would do well to split itself up along the lines of AT&T.

More than a quarter would like to see the entire top tier of management replaced and believe that Bonfield might not be the right person for the job in hand. And they are not alone in this view.

Ovum's Matthews warned: "If Bonfield and [BT chairman Sir Ian] Vallance can't turn this thing around in the next three months, they may both have to go. This current crisis has echoes of bad management."

And Bonfield himself confirmed the precariousness of his position at BT's half-yearly financial briefing. "We've had a bad year, I'm a hired hand, and I'm here at the board's pleasure," he said.