THESE are heady days at BT. Its finances are under control, broadband internet connections are booming and the telecoms group is feeling confident enough to start making overseas acquisitions again. Just look at it grow: turnover in the latest quarter increased by a sizzling ... 2%.

It is easy to mock, but BT’s modest top-line growth hides a transformation in the nature of its business. Like all telecoms dinosaurs, it is under enormous pressure as traditional fixed-line telephony declines.

BT’s evolution is far from complete, and it continues to lose about 5% of its traditional revenues every quarter. But under Ben Verwaayen, its Dutch chief executive, BT is at least moving with the times.

So-called new-wave revenues — partly from broadband and BT’s return to the mobile market, but more importantly from the group’s IT-based work for the NHS and other large organisations — grew by 36% to just over £1 billion in the latest quarter. As the new-wave business becomes more substantial, it makes it ever easier for BT to overcome the contraction in its traditional revenues.

This was recognised by the stock market last week when investors made BT’s shares one of the strongest risers in the FTSE 100.

However, the new-wave revenues are only part of a much wider renewal programme under way at BT. It is committed to investing £10 billion in a 21st century network (dubbed 21CN) over the next five years.

This will create an important asset, not just for BT, but for the nation as a whole. It comes at a time when Ofcom, the communications regulator, is preparing to publish the second stage of its telecoms review, which will shape the industry’s future.

BT’s rivals, which constantly complain of the former monopoly’s market power, are urging Ofcom to force the company to embrace, and demonstrate, “equivalence”. They want to be sure that BT Retail, the customer-facing part of BT’s business, deals with BT Wholesale, which runs the core national network, on exactly the same terms as are available to the rest of the market.

David McConnell, chairman of the UK Competitive Telecommunications Association, said: “If we can get to a point where the outside world can see what BT Retail pays BT Wholesale for the inputs it receives in order to do business — what service-level agreements, what penalty terms and conditions — that will provide the transparency that will enable the regulator to do its job.”

In the past fortnight this has led to claims that the BT board is split, with Pierre Danon, chief executive of BT Retail, pressing for tens of millions of pounds to be spent on the installation of his own equipment in perhaps 1,000 of the group’s exchanges.

The supposed point of this would be to escape existing restrictive regulations, and allow BT Retail to compete more effectively in the fast-growing broadband market. By investing in so-called local-loop unbundling (LLU), BT Retail would have greater control over its own differentiated services, but it would also have significantly less dependence on BT Wholesale.

On Thursday, Verwaayen and Sir Christopher Bland, BT’s chairman, said they were not in favour of the LLU investment, although they dismissed talk of a split. “It’s not about Pierre or Ben or me,” said Bland. “It’s not about names or personalities. This is a debate, within the industry and with the regulator. It’s a very complicated set of issues. It will take time and intelligence and perseverance to resolve.”

Verwaayen pointed out that if BT Retail opts to pursue the LLU option, this would have consequences for the government’s ambitions for broadband Britain, and open up a “digital divide” as LLU only makes economic sense in densely populated areas.

Additionally, Bland said an investment in LLU would force BT to curtail the scale and scope of 21CN, although the company declined to give details. This is because BT Wholesale would have insufficient confidence in its “anchor tenant” (BT Retail) to make the investment.

The availability of advanced broadband services would therefore be restricted. Verwaayen said: “If you don’t care whether (small businesses) can have more broadband capability, that’s fine. But that’s not our choice.” He added: “The fundamental misunderstanding is that Wholesale is helping Retail in BT. The reality is that Retail is helping Wholesale.”

Ofcom, which is anxious to promote investment in “next generation” networks, is known to be concerned that BT is one of the few telecoms companies with the financial strength to invest in new infrastructure.

At the same time, Ofcom is keen to roll back the detailed thickets of regulation that grew up under its predecessor, Oftel. It is hopeful that increased competition — much of it in the form of LLU — will allow it to withdraw from many areas of the market.

Until recently, LLU in Britain has been a dismal failure. Of the 30 companies keen to invest four years ago, almost all abandoned their plans. Only last week, the once-enthusiastic Energis decided LLU was simply uneconomical.

The principal exceptions are Easynet; Video Networks, the London company behind the HomeChoice video-on-demand service; and Cable & Wireless — a recent and important convert to the cause after it bought Bulldog Communications.

Ofcom believes LLU could enable 70%-80% of the UK’s population to switch away from BT. In France, France Telecom is already under considerable competitive pressure.

Bland is certainly right about one thing: the issues are complicated. Even experienced telecoms observers find it hard to pin down all the moving parts. For some, BT is indulging in some high-wire regulatory lobbying — flagging up the LLU move as a serious option in order to put pressure on Ofcom to lighten its regulatory burden.

Others see the public airing of the debate as a way of killing any chance that Ofcom will recommend breaking up BT into its Retail and Wholesale parts.

Even Ofcom appears to have misunderstood the extent of BT’s reported threat to cut back investment in 21CN.

Next week Ofcom has a chance to offer some clarity when on Thursday it is due to publish the second stage of its review. This confused debate could certainly benefit from some clearer communication.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive