An early return to positive cash flow at its managed services division, Global Services, helped BT to produce earnings before interest, tax, depreciation and amortisation 7% higher on sales that fell 3% for 3Q11 at the end of December 2010.
CEO Ian Livingston said group profits and cash-flow in the quarter were ahead of last year. BT Retail grew business revenues, helped by its highest share of DSL broadband net additions for eight years.
"Openreach benefited from a stronger broadband market and growth in its copper line base. BT Global Services is now expected to be cash-flow positive this year, a year earlier than targeted," he said.
Group revenue of £5.04bn was down 3%, while EBITDA rose 7% to £1.48bn. Profit before tax was £531m, up 30%, and free cash flow was £515m, up 69%. Net debt fell £1.4bn to £8.7bn.
BT added 188,000 DSL broadband subscribers, giving it a 53% market share as the effects of its £2.5bn broadband project took effect.
Livingston said he expected Global Services to generate operating cash flow of about £100m this financial year and to double it in the next.
"These results show that we are making progress on a number of fronts. There is always more to do but our performance underpins our outlook for this year and the period to 2012-13," he said. In the previous quarter Livingston had predicted BT's free cash flow would rise to £2bn by then.
However, Ofcom is seeking price cuts on broadband in rural areas as the government pushes for a universal broadband service of at least 2Mbps by 2015, three years later than the previous government hoped.
Livingston said earlier that if BT could get most of the £830m the government has earmarked for rural broadband, it could provide up to 90% of the country with a 2Mbps service.