* Net profit drops 28 pct, in line with market expectations

* Interim dividend of A$0.08 vs A$0.11 a year earlier

* Shares drop to 10-day low (Recasts on dividend cut, adds stockbroker quote and market reaction)

By Tom Westbrook

SYDNEY, Feb 14 (Reuters) – Australia’s largest telecoms company, Telstra Corp Ltd, posted its lowest half-year profit in eight years on Thursday and cut its dividend as revenue from high-margin traditional businesses tumbled and even new business growth faltered.

Telstra dominates Australia’s mobile telephone and broadband markets, but its mainstay fixed-line business has been upended by a government-owned broadband network, which is replacing a Telstra-built system with fibre-optic wires it must pay to use.

As that network nears completion, it is hammering Telstra’s profit, which fell more than a quarter and dragged the payout – once a major reason for holding the stock – down with it.

“It’s not looking pretty,” said Tony Cunningham, who heads Perth stockbroker CPS Capital and owns Telstra shares. “A lot of people will run at this dividend announcement. It’s not a good sign … I can’t see what is going to drive growth.”

For the six months to Dec. 31 net profit dropped 28 percent to A$1.23 billion ($872 million), in line with market expectations.

The earnings plunge illustrates how the company has yet to find a way to offset the impact of the new National Broadband Network (NBN) over a decade since its rollout was announced.

Telstra also cut its interim dividend to 8 Australian cents per share, compared with 11 cents a year earlier. Only its mobile and international divisions grew revenue.

Telstra shares posted their steepest drop in two months, falling four percent in early trade to a 10-day low. The broader market opened 0.2 percent lower.

“Telstra’s circumstances today are very different from what they were before the NBN,” Chief Executive Officer Andy Penn said in a statement.

“We are no longer the national wholesale provider. That part of our business – the revenue and value – is being transferred to the NBN and that is reflected in our income, profit, and dividend.”

Telstra has embarked on a plan to slash 8,000 jobs – a quarter of its workforce – and has flagged asset sales.

About 3,200 staff including 1,500 managers were laid off so far, the company said.

Telstra has also tried everything from forays into mining services, healthcare, video streaming and cloud computing to find new earnings streams.

But none of these have managed to make up for declines in earnings from traditional fixed-line businesses. Half-year revenue at its most promising new enterprise, selling cloud computing and cybersecurity, slipped into reverse and margins tightened.

The cloud computing division’s sales fell 4.1 percent to A$1.6 billion in the half-year, the company said, while fixed-line revenue fell A$276 million, or 9.3 percent to A$2.7 billion.

Telstra reaffirmed its full-year pre-tax earnings forecast of A$8.7 billion to A$9.4 billion.

$1 = 1.4110 Australian dollars
Reporting by Tom Westbrook in Sydney. Additional reporting by
Nikhil Kurian Nainan and Nikhil Subba in Bengaluru; Editing by
Bill Berkrot and Stephen Coates



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