BT is planning to split its business into two parts
Chairman Sir Christopher Bland said that the firm had slashed £10.4bn from its debts, which had reached an "unsustainable" level of £27.9bn in March.
But he also unveiled another drop in quarterly earnings, with underlying profits falling to £186m in the three months to 30 June.
Compared with the previous quarter, BT's profits have almost halved, while in the same quarter a year ago, BT earned £637m.
The company also said its job cuts could total 6,000 this year, rather than the 5,000 previously indicated, with 1,500 jobs likely to go at its Ignite corporate data business in Europe.
BT blamed the expense of servicing company debt as part of the reason for its lower profits.
The cost of paying interest on the company's debt rose by £235m to £474m in the quarter.
The results were roughly in line with analysts' expectations and BT's stock closed up 0.75p at 454.75p.
Debt battle
The key measure in cutting down BT's debt was a £5.9bn discounted issue of new shares, which went off successfully in June.
This helped BT boost earnings per share to 57.9p, compared with just 4.2p in the same quarter of 2000.
"We are ahead of schedule to meet our debt reduction target," Sir Christopher said in a statement.
BT added it was on track to achieve savings of £575m in the current year.
Company split
BT is planning to split into two, spinning off its mobile interests into a separate company, BT Wireless, and bundling the rest of its operations in another unit, Future BT.
The communications union CWU, which has almost 80,000 members in BT, has hit out at the spin-off plans.
"BT is staring into the abyss, risking inflicting irreversible damage to its future prospects for highly questionable short-term benefits which may prove illusory," CWU deputy general secretary Jeannie Drake said last week.
Divisional differences
BT Wireless had an operating loss of £95m on sales of £1bn, hurt by losses at two European subsidiaries, Viag Interkom in Germany and Telfort in the Netherlands.
BT chief executive Peter Bonfield said the firm was looking at plans to revive Viag, including a closer focus on business customers.
Retail, the firm's UK fixed-line business, raised operating profits to £316m from £225m a year ago.
But Retail continued to suffer from price competition and increasing calls to mobiles.
Retail's new BT Together packages, offering cheaper or unmetered calls, cost it £90m in the quarter, equivalent to a 6% cut in call prices.
Concert concerns
The Concert corporate telecoms joint venture with AT&T of the United States remains a burden, and left BT shouldering a loss of £81m.
The continuing poor performance at Concert is likely to renew speculation that BT would seek to pull out.
"We're having very constructive discussions with AT&T about the future of Concert," but a resolution is months rather than weeks away, Mr Bonfield said.