PCCW Ltd, Hong Kong's largest fixed-line operator, lagged forecasts with a 19 per cent fall in second-half earnings yesterday despite growth in pay TV, as it grappled with fierce competition in its core business.

PCCW has taken steps to drive growth, including striking a deal to gain access to the mainland, buying a small local mobile phone operator, and aggressively building a pay TV service.

Its "NOW" TV service, transmitted over a broadband network, has been a bright spot for the company as it has looked to increase revenue in a saturated Hong Kong market.

Executives said they hoped their NOW pay-TV service would break even on an earnings before interest, tax, depreciation and amortization basis by the end of the year.

The company, headed by Richard Li, the younger son of Hong Kong billionaire Li Ka-shing, reported a second-half net profit of HK$646 million (US$82.8 million), versus HK$794 million the year before, according to Reuters calculations.

That belied a consensus forecast for HK$1.07 billion, according to 19 analysts polled by Reuters.

PCCW is turning to new growth drivers as growth in its traditional business decelerates.

The company's share of the local fixed-line market held steady at 68 per cent at the end of 2005 from a year earlier. At the end of 2002, PCCW's share stood at a dominant 82 per cent.

In contrast, average revenue per user for NOW TV customers inched up to HK$114 per month at the end of 2005 from HK$105 a year before.

The number of NOW users grew by 52 per cent year-on-year to 549,000 by the end of 2005. The company targets a total of 750,000 installed NOW TV customers by the end of 2006.

PCCW recommended a final dividend of 12 HK cents for the year, bringing the total dividend for 2005 to 18.5 HK cents per share.

For all of 2005, the company reported a profit of HK$1.60 billion, versus HK$1.56 billion a year earlier.

PCCW shares fell 3 per cent in 2005, lagging the Hang Seng Index's 4.5 per cent rise. The stock trades at around 16 times prospective earnings, pricier than AT&T's 14 times but lower than Hutchison Telecom's 59, according to Reuters Research.

PCCW has said it would pay around 318 million yuan (US$39.3 million) for a 50 per cent stake in China Netcom Broadband Corp Ltd, which provides broadband services to the eastern Chinese cities of Hangzhou and Ningbo.

That deal was expected to be finalized by late April, group Managing Director Jack So said.

PCCW and China Netcom, the smaller of mainland China's two fixed-line carriers, are studying mobile services in the booming southern province of Guangdong and the eastern Yangtze River Delta area around Shanghai.

PCCW, which returned to the mobile business by buying control of loss-making Sunday Communications last year, had over 330,000 participants for its free trial of new 3G service, it said yesterday.

Editor: Yan