The debt being retired, which matures in 2008, is part of the US$4.7 billion that PCCW's fixed-line unit borrowed last year to refinance the debt taken on in 2000. The company says it remains focused on achieving an A-type credit rating, and that 'we are comfortable with the way things stand."

The company reduced its financing costs by 39% in the first half of the current year, and cut staff costs by 3%, generating a 15% rise in pre-tax profits to HK$241.2 million. After exceptional costs, there was a net loss of HK$92 million. PCCW's fixed-line sales, which account for 89% of total revenue, fell 9% per cent in the first half of the year and can be expected to continue to fall. Standard & Poor's raised its outlook on PCCW's BBB debt rating in September to positive from stable, citing improving cash flow.

PCCW's position as the dominant telecoms operator in Hong Kong continues to give problems, however. Fixed-line operators are protesting that the company has been allowed to offer a HK$20 a month rebate to selected customers to stop them defecting to rival carriers. Rivals says that the promotional offer is anti-competitive and should not have been approved earlier this month by industry regulator the Office of the Telecommunications Authority.

Ofta disagrees, saying that the promotional pricing would not create an unlevel playing field for competition. "We examined PCCW's proposal, and found that it was unlikely to have an effect on competition," said an Ofta spokesman.

There 3.86 million fixed-line users in Hong Kong, and PCCW has more than 3m of them. Next biggest operator, Hutchison claims to have 360,000 users.