America Online - the Internet division of media giant AOL Time Warner - reported a fall in earnings for the first three months of the year after an increase in subscription revenues was cancelled out by tumbling advertising and ecommerce revenues.

EBITDA (earnings before interest etc) fell 15 per cent to $433 million from $507 million in the corresponding period last year.

Revenues for the Internet unit were flat at around $2.3 billion.

While growth in subscriptions increased by 19 per cent advertising and ecommerce revenues fell by 31 per cent in the quarter, highlighting the continuing problems faced by the sector.

Worldwide, AOL attracted 1.4 million new subscribers giving it just under 35 million users.

This includes around 26 million in the US, some 6 million in AOL Europe, and fewer than 3 million throughout the rest of the world.

AOL does not strip out European sales figures; however, it recently revealed, during the $6bn buyback of Bertelsmann's half share in AOL Europe, that the division lost a whopping $600m on annual revenues of $800m. Currently, the company benefits to the tune of £30m through favourable tax treatment in the UK, but this loophole will end next year. AOL Europe reckons it can save $300m a year by renegotiating contracts with telecoms infrastructure suppliers, according to an article last month in the Mail on Sunday.

In a statement CEO-elect Dick Parsons said: "Overall, except for online advertising, the performance of our businesses remains at least as strong as we expected when we provided our earlier outlook, and we anticipate that they will collectively drive growth this year.

"The weakness of the Internet advertising business is still a challenge, however, and we have taken decisive steps to address it."

Bob Pittman, who is now running America Online, said his number one priority is to improve advertising revenues for the business.

Oh, and AOL Time Warner reported $54.2 billion net loss for the quarter - believed to be the biggest ever quarterly loss in US corporate history - due to a one-off accounting charge. ®