"There are some heavy duty competitors," said Miles Saltiel, an analyst at WestLB Panmure, citing a new penny-a-minute scheme from AOL as well as free ISP offerings from British Telecom and the BBC. "That represents very serious competition for Freeserve."
Investors again sold Freeserve stock, which plunged 12.25p - 8.2 per cent - to 137.75p. It floated at 150p and rose to 244p before sinking in recent weeks.
"I'm not surprised to see fluctuations in the share price," said chief executive John Pluthero. "Everyone expected to see volatility."
For the 16 weeks to 21 August, Freeserve attracted 14,000 new users per week - less than half its weekly total in the previous quarter. The company, 80 per cent owned by Dixons, claimed that active users - those who have logged on in the past 40 days - rose by one-fifth to 1.4 million, giving it a near 30 per cent market share.
First-quarter sales for the 16 weeks to 21 August doubled to pounds 3.38m from the 12-week fourth quarter ended 1 May. Operating losses before exceptional items jumped more than five-fold to pounds 5.2m as marketing and development costs bit.
The average length of user access was constant at about 17 minutes in the quarter. That compares with rising average lengths of user access, now more than 50 minutes in North America where users pay a monthly subscription fee of about pounds 12 but do not pay usage charges.
Freeserve executives would not say whether they favour government intervention to force BT and other telecoms operators to make Internet access subject to fixed-rate rather than metered fees.
"I'm not going to express any views on that," said Nicholas Backhouse, chief financial officer. "Frankly, whatever the Government does, our aim is to be the Internet leader in the UK."
The company ended the quarter with pounds 97m in cash after raising pounds 127m from its July floatation. Since then it has invested over pounds 16m in three online ventures, including a 13 per cent interest in GlobalNet, a financial information provider with online share trading.Reuse content