The BT Group has reported a fall in pre-tax profits in its latest results, with a third-quarter drop of some 30 percent year on year – £447 million compared with £639 million in Q3 last year. This year's figure was hit by restructuring costs of £76 million as BT swept away a middle-management layer. Last year's near £1 billion tax credit has also muddied the waters for some less than canny analysts.

The group's profit drop was combined with missed revenue targets for Q3 in the wake of intensified competition in the broadband market, not to mention the 'Richard and Judy factor' of reduced premium-rate call volumes. Group revenues, however, were up one percent year on year at £5.15 billion. This was broadly in line with analyst expectations.

Specific items reported in the results included a charge after tax of £96 million, compared with the massive £992 million tax credit last year – which has led some people to report the results as a catastrophic year-on-year performance, rather than merely an unimpressive one.

The worst performer of the group was BT’s wholesale division, where revenues fell 11 percent to £1.2bn – no great surprise, given the increasingly commodity status of many of its services in a highly competitive market, and the spread of so-called 'local loop' services.

Amid the gloom there was good news for the market in terms of outsourcing and services. BT’s high-margin Global Services division reported revenues up six percent to £1.97 billion, and operating profits of £22 million, compared with £2 million in the same period last year.

Here the all-important margin on earnings before interest, tax, depreciation and amortisation (EBITDA) increased to 10.9 per cent. (EBITDA can be used as a financial dip-stick, in effect, into the underlying health of a company's cashflow, because those sometimes unpredictable changes in working capital have been stripped out.)

BT has set a bullish margin target of 15 percent for the services division, to be hit as early as 2009. "We expect continued growth in revenue, EBITDA, earnings per share and dividends, and a significant free cash inflow in the fourth quarter," said CEO Ben Verwaayen.

So where does all this leave the company? In some ways, the former national telco faces a problem analogous to that of our ailing railways. The company would love to build a super-fast network on a par with the broadband networks emerging elsewhere in the world, but it has a massive legacy infrastructure.

Creating fresh broadband connections around new-builds and brown-field sites as they are developed is easy and cheap – but replacing the legacy is not. It is rather like building the high-speed Channel Tunnel link versus maintaining our Victorian commuter lines. Virgin, meanwhile, is promising to supply 50 MBps broadband connections by the end of the year.

With revenue from the group’s traditional businesses declining by three percent, we can see a future shaping up for the British telecoms stalwart in diversified new media and technology services, but building a supporting infrastructure – in the UK, at least – will be massively expensive, and may compel the Government to step in an demand that it does so.

BT is certainly telling itself, and the market, that its future lies in services and new media. However, the group's BT Vision arm has so far pulled in only 150,000 subscribers, a long way short of the (vague) target of hundreds of thousands of customers that BT had predicted by the end of this financial year – now little over one month away.

So a mixed bag of results, certainly, with the promise of solid performance ahead for Global Services.

That said, there remains another lurking problem in the shape of potential changes in pensions accounting rules. Last week, the UK Accounting Standards Board published proposals on how pension schemes could be accounted for in future. These included putting pensions investment returns and changes in liabilities through companies' P&L accounts.

If these proposals are adopted, BT would be one of the worst affected because its £36.9 billion pension liability is much higher than the firm's current market capitalisation of £21 billion. A tough pill to swallow as interest rates are lowered by another 0.25 percent and analysts report more definite signs of a US recession.