SAN ANTONIO (AP) _ SBC Communications Inc. on Tuesday reported a 62 percent drop in profits in the fourth quarter as revenue fell and pension-related expenses rose.

San Antonio-based SBC, the nation's second-largest local phone provider, said its income was $905 million in the three months ended Dec. 31, or 27 cents per share, compared with $2.4 billion, or 71 cents per share, a year earlier.

Excluding special items, income in the latest quarter was 34 cents per share, which matched the consensus of analysts surveyed by Thomson First Call.

Revenue in the quarter was $10.1 billion, down from $11.2 billion a year earlier.

In midday trading on the New York Stock Exchange, the company's shares fell 56 cents to $26.13.

The company said its quarterly performance was hurt by costs associated with line losses, pension and retiree benefits and signing up new customers for long-distance and high-speed Internet service.

For all of 2003, SBC reported earnings of $8.5 billion on revenue of $40.8 billion, compared with profit of $5.6 billion on revenue of $43.1 billion in 2002.

SBC lost hundreds of thousands of customers in its core local-phone business. However, the company said it more than offset those losses with strong sales in long distance, broadband and business data services. It reported adding 2.9 million residential and business long-distance customers in the fourth quarter, most of them in the upper Midwest.

``We see good momentum going into 2004, and we expect margins to stabilize in the first quarter,'' said chief executive Edward Whitacre Jr.

SBC plans to launch satellite video service with partner Dish Network in the first quarter and to expand its offerings to the large business sector, which it has identified as one with strong growth potential.

The company said last month that it was cutting up to 4,000 jobs in the fourth quarter, part of a streamlining process that has cost 30,000 jobs since late 2001.