Italian internet service provider (ISP) Tiscali has narrowly missed its ambitious goal of breaking even in the last three months of last year.

Losses - calculated before interest costs, taxes, depreciation and amortization - totalled 7m euros ($6m, �4.3m) in October-December 2001, compared with a loss of 200 million euros in the same period of 2000.

The Sardinia-based company has often said it was aiming to break even in the quarter, a target which many analysts have long believed would be a stiff challenge.

Even so, Tiscali - the second largest ISP in Europe - expressed its satisfaction with the results and promised to make a "substantial" profit in 2002 as it continues slashing costs and cutting on acquisitions.

Coming close

"We are very proud of the results for two main reasons: the substantial improvement in gross margins and the sharp cost cuts we've been able to achieve," said Massimo Cristofori, Tiscali's chief financial officer.

"We didn't break even but we came extremely close."

Many sector-watchers still believe that the company has a good chance of turning a profit before one-off costs, tax and interest early in 2002.

Nevertheless they question the company's strategy of counting on kickback from telecom operators for every minute customer is spending online as its main revenue source.

Many of Tiscali's large rivals have been investing in subscription broadband businesses hoping to boost revenues for access, services and, hopefully, advertising.

And the fickleness of dial-up customers means that Tiscali's churn rate is high, with 300,000 of its 7.3m customers leaving its services between October and December.

No more substantial acquisitions

The company has followed a controversial acquisition strategy of expending the number of its subscribers and expend into new markets by buying up small regional ISPs with relatively low-margin customers.

Tiscali reported that its ISP acquisition spree is having a positive impact on the company's Web portal business.

Time spent on the ad-supported Tiscali portal increased from 3bn to 4bn minutes between December and January, pushing average revenue per user to 8.7 euros from 7.8 euros.

And largely thanks to three big acquisitions - World Online, LibertySurf and LineOne - the company said its European market share had leapt to 16% from 3%.

For 2002, Tiscali said it would focus on increasing subscribers and creating a stronger brand awareness across Europe and doesn't expect to make any substantial acquisitions.

Shares in Tiscali were up 1.7% percent at 9.21 euros on the news.