Sir Peter Bonfield, chief executive of British Telecommunications, is to step down a year early as the company nears completion of a restructuring that has sharply reduced its debt mountain.

Sir Peter, 57, will receive a pay-off of £1.49 million sterling (€2.4 million) comprising one year's salary (£820,000), one year's bonus (£615,000) and compensation for other benefits such as health cover and car (£50,000). His pension is also being enhanced and his executive share awards preserved.

He is to leave in January 2002, eight months after Sir Iain Vallance stepped down as chairman.

Sir Christopher Bland, who replaced Sir Iain, had extended Sir Peter's contract by 12 months until the end of next year, or until the restructuring was complete.

"The bulk of what we set out to achieve will be done by early next year, so I thought it best to announce my departure now," Sir Peter said. It would avoid succession speculation, he said.

BT, which owns Esat Telecom and Esat Digifone, said it was considering internal and external candidates for the chief executive role. Pierre Danon, head of retail, is widely seen as a possible successor, though observers suggested that if BT was going for an internal candidate, it would probably have been announced.

Sir Peter's early resignation marked the end of the most difficult period in BT's history, analysts said. The company, saddled with debt from unsuccessful overseas expansion and third-generation mobile phone investments, was this year forced to break itself up and ask investors to back a £6 billion discounted rights issue.

One analyst said BT found the right strategy but at the wrong time.

After the sale of the international assets and demerger of the wireless business, BT will again be a domestic telecoms operator as it was when Sir Peter joined in 1996.

A failed bid for MCI as part of a plan to expand in the US led to Concert, a venture with AT&T that offered services to multinational companies. Concert was unwound this month after a year during which the partners failed to agree on how to serve customers.