TeleCity, the internet infrastructure company, yesterday insisted that the European market for its internet hosting services would grow dramatically despite reporting a three-fold increase in losses during the last year.

The company, which joined the stock market last June, said the market for hosting services is forecast to grow from €1bn (£600m) in 2000 to €12.5bn by 2004, according to one estimate.

"The key driver is the rapidly expanding use of the internet by consumers and, more importantly, by businesses," said a company spokesman.

TeleCity, which provides facilities for housing and servicing hardware and high-performance internet connections, posted a pre-tax loss of £12.7m for the year to the end of December 2000, against £3.5m in 1999, as the company focused on rapid growth and sales. The company said it has £47m in cash to fund its development.

The shares, which have underperformed the software and computer services sector by 13% since the company joined the market, fell a further 12.5p to 595p, compared to a peak of £23.45 last September.

Despite increasing losses, TeleCity pointed to strong revenue growth, up 318% to £14.1m over the year.

The company, which currently has 10 operational sites in Europe and plans to have over 30 by 2002, expects to be profitable by the end of 2002.

Mike Kelly, TeleCity chief executive, said: "We are very pleased with the current position and are very confident for the year."

Analysts seemed positive yesterday, saying the results put the company back on track after missing last quarter's revenue forecasts by 20%.

One analyst, however, said the company faces tough challenges this year as it attempts to aggressively push up revenues, expand its services and geographical reach, at the same time trying to become profitable. "There is a risk that they will miss their figures," he said.

The company, which employs 310 people, does not plan to expand through acquisition at the moment.