City Telecom reported a 23 per cent drop in profit to HK$53.92 million in the past year despite a strong performance of its core international direct dial (IDD) service. For the year to August 31, the second-largest IDD operator in Hong Kong said earnings before interest, tax, depreciation and amortisation were HK$111 million, compared with a HK$103 million loss last year. The figure did not include an exceptional profit of HK$186 million recorded last year when the company sold its 15 per cent stake in a broadband business. 'This is an historic year for us in terms of core earnings,' chairman Ricky Wong Wai-kay said. 'In the past five years, I was asked numerous times how we would be affected by downside pressure on tariffs. But we proved a point, that even while the price kept falling, we were still very profitable.' Turnover fell 17.67 per cent to HK$1.01 billion last year, but operating costs fell 34.31 per cent to HK$584 million because of a price drop in international charges, resulting in a stronger operating profit. IDD services contributed 84.74 per cent of turnover, and an operating profit of HK$117 million was offset by a HK$78 million loss in broadband and narrowband Internet service and other content and e-commerce ser-vices. Profit contributions from IDD services rose 2.77 times in the second half from HK$31 million in the first, because the company started selling more prepaid cards and roaming services, according to Mr Wong, who declined to give a breakdown for this new business. City Telecom's 85 per cent-owned subsidiary, Hong Kong Broadband Network, had 30,000 subscribers. Mr Wong said it had been adding 5,000 subscribers a month in the past three months. Narrowband subscriptions fell to 110,000 after the free promotional service ended this year. Mr Wong said City Telecom, with 22 per cent of the IDD market, hoped to build its share of the broadband and - from next year - the residential fixed-line markets. With a plan to offer a monthly tariff of HK$48, Mr Wong said City Telecom hoped to become the second-largest network operator in Hong Kong. 'When we were able to access 1.2 million home passes and link up our existing network investment, I don't see why we would still have a market capitalisation of HK$350 million, or less than 1 per cent of that of the dominant operator.' Pacific Century CyberWorks had a market capitalisation of HK$48.88 billion at a closing of HK$2.175 yesterday. City Telecom closed 1.45 per cent lower at 68 HK cents, giving it a market value of HK$333.65 million. Mr Wong expected it would be three years before turnover of broadband and fixed-line service would exceed its IDD business, assuming they would be able to get 200,000 subscribers in both markets. City Telecom, which has a home pass of 500,000, will apply for a full licence from its present Local Multiple Distribution System licence in 2003.