In late July, a City of London analyst stood up at British Telecommunications' first-quarter results meeting and made an observation few at BT wanted to hear.

He pointed out to senior management that their company had only one-third of the market capitalisation of Vodafone, the mobile phone giant, yet they were attempting to pursue a strategy three times as ambitious by targeting the fixed, internet and mobile markets.

The analyst was articulating what is becoming an increasingly common view in the City, that BT needs to hone down its range of activities - either in terms of the markets it serves or its geographic presence.

If that were to happen, BT would be the first of Europe's giant ex-monopolies to admit it could no longer sustain an all-out approach, and this would be hard on its corporate psyche.

But either the company makes this hard choice or it will continue to take a battering from its critics. The last month has been a particularly rough one.

BT has been downgraded by two credit-rating agencies, Moody's and Standard & Poor's (although this clarification enabled it to push ahead with plans for a proposed $10bn bond offering later this year). The company also failed in a bid to buy Italian fixed-network operator Infostrada, and there have been renewed demands for the dismissal of, either individually or collectively, chairman Sir Iain Vallance, chief executive Sir Peter Bonfield and Robert Brace, the finance director, for not offering sufficient leadership.

So how can BT's embattled management revive its fortunes by redefining its strategy?

The first suggestion is for a tighter focus on certain activities. This would most likely involve a sale of its mobile activities and use of the proceeds to radically improve its position in another market. BT could be built up as a pan-European fixed network carrier, "a giant version of Colt", according to John Tysoe of investment bank WestLB Panmure.

There is, however, a drawback to this approach in that it has been done before and, fairly recently, by BT's historic rival Cable & Wireless. This might make it less appealing to BT's senior management and certainly makes them look less like original thinkers to investors.

A more likely new strategy is to focus on a narrow range of geographic markets. Within Europe, BT is already firmly established through strong management control in the UK, Germany and the Netherlands, but is in a shakier minority positions in France and Spain via mobile phone operators in which Vodafone is also a significant shareholder.

One recent suggestion was to swap its positions in these two countries for the fixed interests in Germany and Italy inherited by Vodafone through its acquisition of Mannesmann. BT lost out in its bid to buy Infostrada in Italy, but it might still find some joy in Germany.

The other suggestion for a more focused geographic approach is for BT to exit a range of mainly mobile activities built up across the Asia-Pacific region. These interests have been built up carefully over the last few years. Many were acquired cheaply when economic crisis was sweeping the region but are minority interests. They include stakes in operators like Korea's LG Telecom and Maxis in Malaysia.

BT would probably collect a tidy profit on such disposals, although they are likely to be worth a lot more in the future. But such a scheme has much support in the City.

"I can see the argument for the necessity of being in Hong Kong and Singapore," says one analyst. "But I'm not so sure about Malaysia."

Proceeds from sales in the Asia-Pacific region could then be invested in making BT a real power in fixed, internet and mobile markets in Europe. Some believe the company would then not be so far away from getting things right.

"BT's worries are massively overstated. It is in much better shape than a lot of people think. Sure, its debt has been downgraded, but only slightly. It's been overplayed," argues one analyst. However, BT's track record is not great.

WestLB Panmure's Mr Tysoe recalls: "In 1989-90, I had a conversation with BT executives while Vodafone was winning licences in Europe with the only competition coming from Pacific Telesis [later AirTouch and later still bought by Vodafone]. And I asked, 'why aren't you doing this?'. And they answered: 'We can't see how to get the value out'. They saw mobile as a marginal business."

Over the past few days have come indications of a possible solution for BT's problems. The Financial Times reported at the weekend that the UK company was in serious talks with AT&T of the US.

The high-level talks, held over recent weeks, have been about combining the business services divisions of both companies into a stand-alone unit, along with a merger of their respective wireless businesses.

Such a move would effectively break both companies apart into separate consumer, business services and wireless operations (see also the interview of AT&T's Rick Roscitt on the facing page).