By Paul Sandle
LONDON (Reuters) - TalkTalk spooked investors with a profit warning and slashed dividend on Wednesday, saying it had added 26,000 customers to its fixed price broadband plans in the second quarter but that winning back market share would hit earnings.
Shares in the British telecoms provider fell as much as 18 percent to a six-month low of 156 pence before paring losses to stand down 9 percent at 172p at 1048 GMT.
Founder Charles Dunstone, who became executive chairman in May, is resetting the business by focusing on customer growth after it lost subscribers last year.
TalkTalk competes with BT, Sky and Virgin Media.
Chief Executive Tristia Harrison said its low price plans had delivered a third consecutive quarter of customer growth, and 1.6 million, or more than 50 percent, of its customers now had prices fixed for 18 or 24 months.
"Clearly tough economic times mean all value providers regardless of sector are seeing some benefit," Harrison said.
"It's important to say that is coming at a cost," she said.
"We are investing to bring in new customers. We are investing to move customers to these fixed-price plans and we will continue to do so."
The company reported a loss before tax of 75 million pounds for the six months to September 30 versus 30 million pound profit a year earlier.
In response it slashed its interim dividend by more than 50 percent to 2.50 pounds from 5.29 a year earlier and warned that earnings before interest, tax, depreciation for the year would now likely come in towards the lower end of its 270-300 million pound guidance.
Harrison said the investment would pay off, however, and she expected a stronger step up in net adds in the second half.
She said TalkTalk was targeting customers who took expensive TV packages from Sky and Virgin along with broadband, and who instead wanted a straightforward pay-as-you go TV service to complement providers such as Netflix (NASDAQ:NFLX).
TalkTalk has scaled back its ambitions in mobile in the reset. Harrison said it was working on a simple SIM-only offer with its partner Telefonica (MC:TEF) for launch in the third quarter.