UPDATE 2-TalkTalk ups outlook as customer defections stabilise

* Raising full-year EPS guidance by 6 pct to 17.0-17.5 pence

* Sees return to positive customer adds in H1 2012

* Broadband customers down 43,000 during the quarter

* Says YouView on track for spring launch

* Shares up 9 pct

By Paul Sandle

LONDON, Feb 7 (Reuters) - British broadband provider TalkTalk raised its full year profit guidance and said it was confident it would return to growth in the first half of 2012 after shedding yet more customers in its third quarter.

The company, which competes with BT, Virgin and BSkyB, has suffered from poor customer service as it integrated a number of separate billing systems.

Its total number of broadband customers fell 43,000 during the quarter to 4.08 million, while revenue was stable quarter-on-quarter at 422 million pounds ($667 million).

Chief Executive Dido Harding said the number of complaints, both to its call centres and to regulator Ofcom, were falling. "Churn has stabilised and we remain confident of a return to positive total net adds in the first six months of this calendar year," she said.

The group raised full-year earnings per share guidance 6 percent to 17.0-17.5 pence, helped by moving more customers on to its own network, cost savings and increasing the average revenue per user (ARPU) to 25.3 pounds.

"By having more customers on our network we can offer them more services -- which they are taking -- and that is driving both ARPU growth and profit growth for the business," Harding told Reuters in an interview on Tuesday.

"We are also having success in upselling; we now have 22 percent of our customers on our premium product 'Plus' and we are on track to have one million of them by year end."

Premium customers pay 14.50 stg against 6.50 stg for its standard offer, and in return receive unlimited calls to fixed lines, additional security features and a higher download allowance, she said.

Shares in TalkTalk rose as much as 10 percent as investors welcomed the upgrade in guidance. They were trading 9 percent higher at 130 pence by 0900 GMT, the top performing mid-cap company.

Analyst Mark James at Liberum Capital said TalkTalk could be seeing an inflection point in customer dissatisfaction.

"We believe TalkTalk can grow EBITDA (core earnings) by around 30 percent over two years, through a combination of cost cutting, continued unbundling, and customer mix development," he said.

YOUVIEW

TalkTalk will tackle a shortcoming in its offer -- the lack of a TV service -- with the arrival of internet TV platform YouView this year.

Harding said the service, which includes broadcasters BBC, ITV and Channels Four and Five as partners, was on track to launch in the spring.

"We have started end-to-end user acceptance testing -- that's the big precursor to moving into consumer trials," she said.

The British online TV market is starting to heat up, with BSkyB launching an online offer to grow beyond its satellite base, and increased competition between online film providers Netflix and Amazon-owned rival Lovefilm.

"I would be worried if Sky and Virgin weren't doing something now because they know we are going to be launching our TV proposition this year and they are getting their defence out ahead," Harding said.