Colt Telecom's chief executive, Paul Chisholm, shocked the market yesterday when he announced his intention to quit - sending the network operator's shares into rapid descent.

Colt's shares fell almost 9% to £19.65 as investors digested the news that the American who helped steer it to its present success was leaving.

No date was set for Mr Chisholm's departure, though he apparently intends to remain as an adviser member of the board.

Mr Chisholm said he was leaving Colt in order to be with his family in Boston. He joined the company in 1992 from Teleport Communications Boston, and holds about 2.4m shares in the group. Colt is 51% owned by the American investment group, Fidelity.

Phil Campbell, an analyst at Schroder Salomon Smith Barney, said of the resignation: "It's a little bit of a shock. The shares are basically down on the back of that."

The company is searching both internally and externally for a replacement.

The executive's resignation did adversely affect the reception of Colt's second-quarter results. The company reported that earnings before interest, tax, depreciation improved from £845,000 to £1.6m.

It was Colt Telecom's fourth consecutive reporting of positive data. Analysts were expecting the group to report a loss of £1.35m.

Pre-tax losses, however, widened from £26.4m to £33.7m, with analysts not expecting the group to break even until 2003.

Colt Telecom's turnover rose from £94.3m to £151m - with some two-thirds of that being generated outside Britain.

"The numbers are very good and are better than expectations," Mr Campbell said.

However, most forecasts for the company's full-year results were held steady - given the margin pressure expected from the substantial costs related to the development of website hosting and asymetric digital subscriber line, or ADSL, services.

Colt Telecom provides high bandwidth data, internet and voice services to business and government customers in 22 European cities.

It expects to introduce its ADSL services in Germany and the Netherlands during the fourth quarter of this year.

The company has six website hosting centres.

Colt's strong sales growth in the quarter was driven by increasing demand for its services; it added high-profile clients Sema , Axa and Bloomberg in the same period.

The company also won a new contract for voice services for the London borough of Hammersmith, and is providing internet hosting for Channel 5 and Copernicus Global Billing, a multi-service billing application service provider.

"Strong demand for our range of high bandwidth data, internet and voice services, an expanding product and service portfolio and extended market reach have all contributed to an excellent second quarter performance," said Jim Curvey, chairman of Colt.

"We remain confident about the outlook for the rest of the year and beyond."

Colt Telecom also has a joint venture with network group Cisco Systems to develop net protocol services. The company expects its future growth to rely on the provision of business and government customers with net and software application services from its website hosting centres.