TalkTalk has reported a fifth consecutive quarter of customer defections, with 50,000 lost in the three months to the end of December as the company continues to trail larger rivals BT Group and BSkyB.
The broadband and TV provider has lost 170,000 customers since November 2010, bringing its total down to 4.079 million, as BT and Sky continued to attract the lion's share of new broadband customers and poach business from rivals.
However, TalkTalk's share price raced up 9% to 130p in morning trading on Tuesday, as investors cheered a raised profit forecast from chief executive Dido Harding.
Full-year underlying earnings are now expected to be between 18% and 19% of revenues, up from previous guidance of 17% to 18% and an improvement on last year's 15.6% margin.
Revenues in the third quarter remained stable, rising £1m from the second quarter to £422m, but were down 5% on the same period the previous year. However, the business is becoming more profitable as the number of customers using its network of lines "unbundled" from BT's exchanges continues to grow.
Average revenue per user for TalkTalk broadband customers increased to £25.30, compared with £24.70 in the previous quarter.
"We are growing the number of customers on our network every week and that is what is driving the performance of our business," Harding said.
"We have continued to improve our customers' experience with further falls in customer service call volumes and an increase in the rate of online self-service. As a result, churn has stabilised and we remain confident of a return to positive total net adds in the first half of 2012."
TalkTalk had originally hoped to start growing customer numbers in the final months of 2011, but a mounting subscriber exodus delayed that target.
Formed through the rapid mergers of broadband companies including Tiscali, Pipex and Carphone Warehouse, TalkTalk has been struggling to integrate its billing platforms.
It was fined £3.1m by Ofcom after wrongly billing thousands of Tiscali customers for services they did not receive.
The group has lost 43,000 broadband customers in the past two quarters, including 7,000 of the 200,000 former Pipex subscribers in the most recent period.
Levels of customer churn were not disclosed, but TalkTalk said it remained stable on the previous quarter despite the Pipex defections, with call volumes to its customer service centre down 26% year-on-year and 60% of customer contacts now taking place online.
TalkTalk unbundled – installed its own equipment – in 130 new BT exchanges during the quarter, bringing the total to 2,338, with a further 119 expected in the final quarter.
The work is designed to improve customer numbers and profitability, because TalkTalk can offer lower prices but still make a bigger profit margin on unbundled lines.
The group said 80% of its customers are now on fully unbundled lines.
HomesafeTM, an optional product which blocks pornography and self-harm sites, has been activated by a further 60,000 customers, bringing the total to 270,000, despite concerns raised by internet privacy groups over its ability to track every website visited by a user.
The company is about to begin consumer trials of on-demand internet TV service YouView, a joint venture with other backers including the BBC and BT.
YouView and is on track for its scheduled launch this spring, TalkTalk confirmed.
The arrival of YouView could boost the numbers buying super-fast fibre optic broadband from TalkTalk, which remain low at just 5,000.
"At the moment there are very few households who genuinely really need fibre but that will change over time as demand for multiple live video viewing within a single household grows," Harding said.
