LONDON -- To gauge the sense of relief from investors over

British Telecom's

(BTY)

restructuring plan announced Thursday, one need look no further than BT's share price, which rose more than 4% and was virtually the only bright spot in a troubled market on the day.

The decision by the company to reorganize its businesses along product, rather than geographical, lines --

a la

Telefonica

(TEF) - Get Report

and

Deutsche Telekom

(DT) - Get Report

-- was largely expected. What cheered investors and analysts was that BT has gone further than expected.

Nevertheless, the consensus suggests that BT still has much more to do.

The most radical part of the plan is to separate its U.K. fixed-line business into wholesale and retail, and rope this heavily regulated part of the business off from growth areas, giving the organization more regulatory clarity.

BT will reorganize the remainder of its business into four divisions, some or all of which may be floated.

There will be

Ignite

, which like

KPNQwest

(KQIP)

, will be BT's data carrier business, offering broadband services around Europe. It will also include BT's data services businesses,

Syntegra

and

Syncordia

.

BTopenworld

will encompass BT's consumer Internet interests, including its domestic and international Internet service providers and portals like mobile portal

Genie

.

BT Wireless

will comprise all of BT's mobile operations worldwide including the

Advance

alliance with

AT&T

(T) - Get Report

. Finally, there will be the snappily named

Yell

, which consists of the U.K.'s Yellow Pages.

BT said it will sell a minority interest in Yell before the year is out, but has no fixed plans to float the other parts of the business.

As well as making some senior management changes -- though not as many as some would have liked -- BT also restated its intention to increase the ownership in its joint ventures, such as buying the remaining 50% stake in the Dutch telco

Telfort

, which will cost 1.2 billion pounds ($1.91 billion).

The move to separate the parts of BT's business will, analysts argue, allow for an enhanced sum-of-the-parts valuation. As such, it gave BT's shares a welcome -- and needed -- boost, closing Thursday up 44p, or 4.0%, to

11.33. BT shares traded in New York closed the day up 9 7/8, or 5.8%, at 180 1/2.

BT's chief executive, Sir Peter Bonfield, considers raising BT's share price as vital. BT trades at a discount to its peers and the share price was slammed back in February -- although it has since recovered -- when the company announced that pretax profits in the third quarter were 24% lower and fourth-quarter figures would be little better. This has inevitably led to speculation that the company could soon find itself facing an unwarranted bid, the prime suspect being Spain's Telefonica.

"This is the first decisive move to re-establish BT's credibility," says Philip Dumas, head of European Institutional sales at the research and investment firm

Durlacher

.

Yet Dumas and others feel BT still has some way to go before that credibility is fully restored. "To quote Winston Churchill, 'This is not the beginning of the end, this is the end of the beginning,'" says Dumas.

Justinian Clifford-Bowles of

Commerzbank

, who has an accumulate rating on BT, goes even further. "Overall there is not much for investors to cheer about." Commerzbank has performed no investment banking services for BT.

Bowles was disappointed by BT's decision to announce only one definite flotation of the business units, and by the fact that there was no rethink of BT's international strategy. BT has recently been outmaneuvered by its competitors in the pursuit of

Cegetel

and

Airtel

.

Furthermore, the plan as it stands is a very complex one. BT has its work cut out to improve the separate businesses before they can be floated and convince shareholders that this reorganization is more than an exercise in changing the way it reports its financial results.

Certainly, this plan is a step in the right direction. However, a failure to carry out the reorganization successfully and take it forward would leave BT in worse shape than it is now.