BT Group reported third-quarter revenue slightly lower than analysts expected Thursday, sending shares down by 9.8 percent.
The UK telecom company's quarterly sales were affected by 'transit business' -- which is flow-through business where if one mobile operator wants you to connect to another mobile operator, it hits BT's cables and will go through -- which has hardly any margin, according to CEO Ben Verwaayen.
But the group reported strong growth from its Global Services division, where key margins increased to 10.9 percent and revenues rose by 6 percent.
"This has been a highly significant quarter," Verwaayen told CNBC. "We have been talking about the expansion of our BT Global Services margin for a long time, we have delivered. We said it would be in the second half of the year, a hundred and forty basis points up and here to stay."
"I think we have substantial cost improvements in our Global Services business and we can grow our business at the same time as taking costs out, so you don't have to sacrifice revenue there to get to your margin," he said.
But the competition in the broadband market from the likes of BSkyB and Carphone Warehouse took its toll as they rolled out their own networks, meaning BT's wholesale division made less money from renting out its lines.
A drop in television quiz show phone-ins also hit sales.
Shares in the group opened more than 4 percent down at 251-3/4 pence.
Britain's biggest fixed-line telecoms provider said revenue rose 1 percent to 5.15 billion pounds, with so-called new wave revenue from broadband and corporate networked IT services up 7 percent. Analysts had been expecting revenue of 5.25 billion.
The group reported underlying earnings before interest, tax, depreciation and amortization (EBITDA) before specific items and staff-leaving costs of 1.47 billion pounds ($2.9 billion) for the three months to Dec. 31.
Analysts had been expecting EBITDA of between 1.46 and 1.48 billion pounds according to Reuters Estimates and a consensus by the company.
"We expect continued growth in revenue, EBITDA, earnings per share and dividends, and a significant free cash inflow in the fourth quarter," Chief Executive Ben Verwaayen said in a statement.
The global services unit provides outsourced IT telephone and network services and analysts were keen to see any sign of its margins improving.
"The numbers of our business are very strong and I am very pleased to see the expansion of our margins," Verwaayen said.
At 10.9 percent, the EBITDA margin was ahead of last year's 9.5 percent and moving towards the company's medium term aim of 15 percent. The unit also posted revenue growth of 6 percent to 1.97 billion pounds and said it had secured total orders in the quarter amounting to 1.9 billion pounds.
Analysts at Collins Stewart said the information on Global Services should be well received and said the numbers were in line, "but only just".
Collins Stewart said if there was one weakness it was the broadband additions as they had been looking for around 220,000.
There were 511,000 broadband connections in the third quarter, with BT retail unit's share of those net additions at 35 percent, giving it 177,000 new customers.
"With a 6.3 percent div yield, and (some) growth we think these results serve to underline BT's defensive qualities and reiterate our Buy rating," analyst Mark James said.
- Reuters contributed to this report