PCCW, Hong Kong's biggest fixed-line provider, said on Wednesday it would soon buy stakes in a broadband subsidiary of China Netcom, the state-owned operator, as it reported its first annual profit since 2001.

The company also said its core-fixed line business, which has been under intense competition in the past few years, stabilised last year although some analysts warned that it has come at the expense of revenue.

PCCW, which is headed by Richard Li, son of Hong Kong's wealthiest businessman Li Ka-shing, has said it would invest up to HK$5bn (US$640m) in China to expand beyond the territory's crowded market after Netcom bought a 20 per cent stake in the Hong Kong company for HK$7.9bn in January.

Jack So, deputy chairman, said on Wednesday PCCW would acquire an interest of less than 49 per cent in CNC Broadband Network, which will provide broadband and pay-TV services in six Chinese cities including Hangzhou and Chongqing.

The pair also have plans to develop luxury flats in Beijing and a yellow pages business on the mainland.

The update came as PCCW reported net profit in 2004 of HK$1.64bn compared with a loss of HK$6.1bn the year before when it had to write off the value of Reach, a loss-making undersea venture with Australia's Telstra.

Turnover rose 2 per cent to HK$22.9bn thanks to a HK$5.42bn contribution from property sales.

However, operating profit dropped 6 per cent to HK$4.07bn as revenue from local telecoms services dropped 12 per cent to HK$5.3bn.

The company said on Wednesday although its fixed-line market share dropped to less than 68 per cent at the end of 2004, compared with 73 per cent in 2003, line loss slowed from about 25,000 a month in 2003 to less than 6,000 in March.

But analysts warned that PCCW's fixed-line revenue could continue to see a ?double digit? drop after the company lowered prices to retain and win back customers last year.

PCCW also said on Wednesday its year-old pay TV business is gaining momentum as 53 per cent of its 361,000 subscribers were paying the company an average HK$105 a month in the fourth quarter of last year. The company said it aimed to have 500,000 users by the end of 2005 and told analysts that the business would become positive on an earnings before interest, taxes, depreciation and amortisation basis this year.

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