A 10 per cent drop in the number of customers saw PCCW's core fixed-line business contributing to last year's US$995 million attributable group loss. The result compared with a US$172 million net profit in 2001. Fixed-line revenues - accounting for 89.6 per cent of total turnover - fell 9.2 per cent, to US$2.3 billion, with customers defecting to competing operators' lower prices as the industry's barriers to entry eased. PCCW's fixed lines dropped 351,000 to 3.13 million - equal to industry and analyst forecasts. They estimated PCCW would have lost about 366,000 lines last year, leaving 3.12 million, the South China Morning Post reported on Thursday. Goldman Sachs estimated in a research report the figure to be 3.1 million. Its share of the residential-line market fell from 93 per cent to 84 per cent and business-line share declined to 79 per cent from 83 per cent. The US$995 million bottom-line loss was due mainly to a US$1.06 billion impairment loss on goodwill incurred by undersea cable operator Reach - its joint venture with Australia's Telstra. Other contributors to the loss included a US$227-million accounting loss on the disposal of a 40 per cent stake in Hong Kong mobile operator CSL to Telstra, and other impairment losses and restructuring costs. Chairman Richard Li Tzar-kai said: 'Except for Reach, operating margin and cash flow have seen some healthy growth amid the economic uncertainties.' With exceptional items stripped out, the net profit rose to US$288 million, due to cost-cutting, and finance costs were down a year on year 35 per cent, to US$256 million. Debt refinancing saw the average cost of debt at 5 per cent from 6.6 per cent before. Net debt was cut 16 per cent to US$4.22 billion. Net cash inflow rose to US$147 million from US$117 million. Earnings before interest, taxes, depreciation and amortisation (EBITDA) - a measure of core operating performance - rose 9.8 per cent to US$1.04 billion, as PCCW slashed staff costs by 15 per cent and other expenditure by 10 per cent. The ebitda margin rose to 40 per cent from 34 per cent. The permanent staff count fell to 11,560 from the 14,583 at the end of 2001. Chief operating officer Mike Butcher said the company would defend its market share in the fixed-line arena by 'premium pricing, value differentiation and brand'. Of the fixed-line operation, international dialling services was the hardest hit last year, with revenues tumbling 20.4 per cent to US$456 million. Local telephony service revenues fell 8.9 per cent to US$879 million, while local data services rose 4.2 per cent to US$571 million. While conceding Reach faced pressure from severe industry over-supply and falling prices, management said PCCW did not see the need to make further provisions on its investment in the joint venture. PCCW and Telstra were in 'constructive' negotiations with Reach's creditor banks over repayment of US$2.5 billion of loans, and would not comment on media reports that the two companies were asked by the banks to inject cash into the venture. The banks have reportedly threatened to withdraw their business from Reach unless there was a cash injection. Mr Butcher said PCCW would consider further acquisitions provided they did not affect its priorities of repaying at least US$1 billion in debt between last year and 2005, and required only a modest capital investment. In relation to its property operation, PCCW realised US$315 million by selling 350 units of the Cyberport's Residence Bel-Air project in Pok Fu Lam since its launch in the middle of last month. They were sold at 'above break-even point'. Last year PCCW invested US$499 million in the project with an additional US$100 million to US$125 million investment this year, based on sales of 450 units in the second and third quarters.