Thus falls as Demon fails to compete with free ISPs

Turnover for the quarter rose a modest 6% to 50.6m, while operating losses soared by more than 290% to 18m, against a loss of 4.6m for the same period in 1999. Increased operating losses were attributed to investment into expansion, as well as competitive trading which added pressure on gross margins.

Internet operations grew by just 3% to 19.4m, fuelled by a 36% increase in business services that rose to 6m as demand for the bundled services including dial-up access, e-commerce, and hosting. The overall growth in business revenues was offset by a 13% fall in dial-up subscription revenues, as residential customers abandoned the Demon ISP in favour of more competitive free access providers. During the quarter, Demon saw its monthly churn rate increase to 1%, as comparable services, offering lower charges, and better content have emerged.

Trading was also adversely affected by increased competition in the premium rate services market, which saw revenues from its Interactive Services division fall by 26% to 5.8m from more than 7.8m. Thus' reliance on premium rate lines, which are considered by market watchers as unreliable and highly commoditised, is believed to be the investors' main concern, as it still accounts for more than 11% of total revenues.

The company has also issued a profit warning for the full year, as it expects growth rates for the next quarter to be below the previous year's, while the cost of investment for future expansion mounts up.