HONG KONG-PCCW Ltd.'s net profit rose 2.5% as the popularity of Internet-delivered TV service boosted its core fixed-line phone business and virtually halted a decade-long slide in its customer base.

The company's re-entry into the cell phone market proved to be a drag on profit, however. Executives said it will take some time to see a payoff from the advanced third-generation wireless services that it recently began to offer.

Chairman Richard Li said PCCW will approach 3G services more cautiously than the company's chief competitor in the Hong Kong market, Hutchison Whampoa Ltd., which is controlled and led by his father Li Ka-shing.

PCCW said it earned HK$1.6 billions, or US#206 million, in 2005, up from HK$1.55 billion in 2004. Revenue fell 2.2% to HK$22.5 billion, chiefly because of a change in accounting rules that affected the way it recognized revenue from real estate transactions. PCCW restated its 2004 results to reflect the rule change.

The results fell below analysts' expectations. However, revenue in PCCW's core telecommunications businesses rose 4% last year, ending a long string of declines.

The company, which regulators forced to give up its monopoly hold on Hong Kong's telephone service a decade ago, stabilized its market share for fixed-line phones at 67%. PCCW added 50,000 lines to its fixed-line businesses in the second half of the year, almost a total reversal from the 53,000 it lost in the first half pf the year. For all of 2004, the company lost 212,000 fixed lines.

"Few incumbent [monopoly] operators have successfully arrested the decline in market share" after losing their monopoly," said Jack So, PCCW's chief executive. "We are one of the few."

The popularity of PCCW's television service helped lure customers back. The company delivers the TV service through its broadband-data system and packages all three services together. The company reported yesterday reported 549,000 customers for the TV service as of Dec. 31, up from 361,000 a year earlier. The service, which was started in September 2003, isn't yet profitable on its own, but executives said they expect it will be by the end of this year.

Sunday Communications Ltd., the mobile-service provider in which PCCW took a controlling stake in June, reported a net loss of HK$197 million a year, compared with a profit of HK$4 million in 2004. PCCW executives attributed the performance to increased costs associated with building Sunday's 3G network, which was rolled out to customers two months ago.

PCCW's Mr. Li, the chairman, said the company decided to buy Sunday in order to add mobile-phone services to its menu of fixed-line, broadband and TV. He noted that the business-news TV channel the company started earlier this month is available on both its TV system and 3G network. "We believe there is attraction to 3G, but we do not believe it is so overwhelming that it is worth incurring bid losses," Mr. Li said.

His father's company, Hutchison, has suffered substantial losses in its 3G business, which it deploys in nine countries. The company has sold investments and assets to offset those losses. Last month, Hutchison called off a planned initial public offering of shares in is Italy 3G firm when investors objected to the target price.

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