UPDATE 2-Telstra profit, outlook miss forecasts, shares slide

(Adds dealer comment, updates shares)

By Sonali Paul

MELBOURNE, Aug 13 (Reuters) - Telstra Corp Ltd (TLS.AX), Australia's biggest phone company, disappointed investors with a 14 percent rise in second-half profit and its outlook for the year ahead, sending its shares down 4 percent on Wednesday. For the year ahead, Telstra said it expected 3-4 percent growth in sales and 6-8 percent growth in earnings before interest and tax, compared with analysts' forecasts for a 2.7 percent rise in sales and an 8.5 percent rise in EBIT.

"The result was probably a tad below expectations. There are probably going to be slight downgrades in the market," said George Kanaan, head of institutional sales at UBS, adding brokers were likely to trim earnings per share forecasts for 2009.

Telstra, three years into a five-year plan to cut costs and transform its networks, raised its forecasts for 2010 to 3.0-4.0 percent annual growth in revenue and 3.0-3.5 percent growth in earnings before interest, tax, depreciation and amortisation, up from an earlier target of 2.5-3.0 percent growth for both.

JP Morgan analysts warned ahead of the result that broker forecasts for the 2009 financial year were bullish at a time when Telstra faced slowing economic growth in Australia, which was likely to curb demand from corporate customers.

"At present we are seeing minimal impact from the prevailing macroeconomic environment on our domestic business," Telstra Chief Executive Sol Trujillo told analysts.

Telstra said it would consider using its strong free cash flow to increase returns to shareholders, make acquisitions or cut debt.

Net profit for the six months to June rose to A$1.766 billion ($1.536 billion), up from A$1.549 billion a year earlier, slightly below analysts' forecasts of A$1.808 billion given by Reuters Estimates.

The main drivers were strong growth in sales of high-speed Internet services to homes and advanced services on mobile phones, as it lured customers from its main rivals Optus, owned by Singapore Telecommunications (STEL.SI) and AAPT, owned by Telecom Corp of New Zealand (TEL.NZ).

Telstra, a former government monopoly which also competes against the local arms of Vodafone (VOD.L) and Hutchison (HTA.AX), still has the lion's share of fixed-line connections with about 70 percent, and about a 48 percent share of broadband.

Telstra shares have outperformed the broader market so far this year but after the result its shares fell as much as 4 percent to a low of A$4.32. The shares last traded down 3.3 percent at A$4.35 in a broader market .AXJO down 2.1 percent.

The biggest risk facing Telstra is that the Australian government might force it to split off its networks business from its retail and wholesale arm to encourage competition in Internet services on a new A$9.4 billion fibre broadband network, which the government has put up for bid. ($1=A$1.15) (Editing by Kim Coghill)