Italian internet service provider (ISP) Tiscali has slipped back into the red after breaking into profit for the first time earlier this year.

Tiscali, which ranks third among European ISPs, also slashed its sales forecast for this year by 20%.

That move has got analysts questioning the viability of the firm's pay-as-you-go sales strategy.

Nonetheless, the Sardinia-based firm plans to continue the expansion strategy which has turned it into a rival to Wanadoo and T-Online.

Spanish strategy

It is working on a deal to double its subscribers in Spain by buying Navegalia from Vodafone and hopes to reach an agreement next week, its chief financial officer Massimo Christofori has said.

Analysts have put the price of buying Navegalia at about 10m euros ($9.8m; �6.3m).

Mr Christofori declined to comment on the likely cost.

"At the moment nothing is confirmed," he said.

Rival raises profits forecast

Tiscali cut its sales forecast for this year to 800m euros, down from 1bn euros, after losing almost half a million subscribers in April, May and June.

Dresdner Kleinwort Wasserstein analyst Kai Kaufmann said: "This reinforces our serious concerns about the sustainability of Tiscali's business model."

The number one European ISP, the German firm T-Online, moved into profit last week and has raised its profits forecast to between 30m euros and 40m euros.

Tiscali posted a loss for April, May and June of 9.5m euros, disappointing analysts who reckoned the firm would stay profitable.

If it had succeeded it would have become a rarity among ISPs.

Tiscali reported profits of one million euros for the January, February and March period.

Its core losses for the first six months of this year were considerably lower than the same period of last year.

Losses shrank to 8.6m euros from 118.9m year-earlier, based on earnings before interest, tax, depreciation and goodwill payments.

Sales rose to 367.7m euros, compared to 258.7m euros.

Tiscali's share price had dropped nearly 6% by late morning in Milan.