Problems? I love them, says BT's man with the Freddie Mercury moustache...

WHAT is it with BT and facial hair? Sir Peter Bonfield, chief executive and soon to head BT Group - what remains of the empire after the demerger of its mobile phones division - sports a cropped beard.

And over at mmO2, the ludicrously named mobiles business, chief executive Peter Erskine has the most splendid moustache. It's more Freddie Mercury than Lord Kitchener, but still a magnificent thing - glossy and black, in striking contrast to Erskine's hair, which is the silvery side of salt and pepper.

He has had the moustache since the age of 18 when he went to Liverpool University to study psychology in the Seventies. Since then, the only time his upper lip has seen the light of day was after he made a mistake with the trimmer. 'That lasted three months,' says Erskine. 'My wife didn't like me without it.'

Try to forget the moustache (not easy) and ask the obvious - how did a psychology degree lead to a job in mobile phones? Erskine admits that he has forgotten most of what he did at university, with the exception of the occasional experiment involving rats and mazes. But he learned at least two important things. 'It certainly taught me about statistics,' he says. That much is obvious from the ease with which he wields figures.

'Every piece of bad news is an opportunity'
Second, and more important, Erskine clearly remembers the lessons of those psychological questions. Is a part-full glass half-full or half-empty? He is the archetypal half-full man - every piece of uncomfortable news is seen as a great opportunity.

He has a tough job on his hands - the City is hardly fond of mmO2. This year, British Cellnet slipped behind Orange. Vodafone, launched at the same time as Cellnet, has nearly 100m customers in 28 countries while BT has struggled.

Erskine's empire has just four parts - BT Cellnet in the UK; the beleaguered Viag operation in Germany; Telefort in the Netherlands and a few hundred thousand customers in Ireland.

Cellnet, soon to be renamed O2, has lost customers at 40% a year. While it is gaining new customers faster than it is losing them, this churn rate far exceeds the industry average.

Viag paid more than £5bn for a third-generation (3G) mobile licence, but has just 6.7% of the market. Erskine says: 'We are operating in countries with a combined population of 160m. Because we hold 100% of the operating companies, we have no diversions.' Cellnet has more than 800,000 users of WAP, technology which gives internet access to mobile phone owners

He says: 'We are the first to offer a device to allow subscribers to download e-mails over the new GPRS service, and the personal digital assistant we launched two weeks ago gained considerable acclaim.'

But hang on: Cellnet has just over 10m subscribers, yet only 800,000 of those use WAP - and that after 18 months of marketing. Users found it took the best part of a minute to find and download a few lines of text through a WAP phone. Surely nothing to boast about from a man who studied human thinking and started life in marketing?

And what about Genie, a WAP portal, an access point to the mobile internet? Erskine says 40% of users are Vodafone or Orange subscribers. But he admits Genie loses £200m a year. 'We win by getting them to switch to Cellnet,' he says. Except, of course, they are not switching to Cellnet.

And whatever happened to U? It was launched to attract youth customers to Cellnet. A pre-pay product, U represented a huge giveaway of mobile phones. Young people took the phones but spent little on calls. They cost Cellnet dear.

'This is an industry about promotion, which is why we did it,' says Erskine. 'You keep things going as long as they are worthwhile and stop when they have outlived their useful life.'

And in Germany? BT wrote off £3bn of its £7bn investment after being forced to buy the German offshoot outright, thanks to a careless deal. Erskine says: 'If we continue to improve in Germany, there is a really big upside.' In fact, if he delivers on half his promises, the whole company has a real chance of improvement.

'A bid for mm02 is unlikely'
Certainly, Erskine has come up with some inspired ideas. Viag is selling a new product called Genion - mobile phone users are charged a special low rate if they are close to home or, more likely, close to their office.

Even the challenge of making money from 3G phones fails to dampen Erskine's spirits. BT paid £10bn for 3G licences in Germany and Britain. Nine months later, a trial system on the Isle of Man is finally working properly.

Erskine claims mmO2 has solved a technical hitch that meant mobile users could not use the net on the move. But there is a more serious problem - phones that work on existing networks and the new highspeed internet variety will not be available before 2003. 'That suits us - that is when the demand will arrive,' he says.

You have to admire his optimism. And Erskine brushes off suggestions that mmO2 won't be around for long as an independent outfit. 'At the moment, because of the market, I think a bid is very unlikely,' he says.

Corporate financiers take note. If Erskine has his way, mmO2 will forge ahead for ever. And for a time at least, it will have at its helm the most irrepressibly sunny chap you could imagine.

Problems? No, they're all opportunities.

Interview by Simon Fluendy