TalkTalk says puts cost savings on hold for quality focus

* Q3 revenue up 4.2 pct, says will be at least 4 pct for year

* Additional costs will result in full-year earnings at lower end

* Shares (Berlin: DI6.BE - news) down 1.1 pct (Adds CEO comments, analyst reaction, updates shares)

By Paul Sandle

LONDON, Feb 3 (Reuters) - British broadband supplier TalkTalk said a focus on improving customer service across its mobile, television and fibre products had delayed its cost-saving programme, hitting its full-year earnings forecast.

The group said it had recorded its strongest ever combined take-up of mobile, TV and superfast fibre broadband in the third quarter, delivering a 4.2 percent rise in revenue, but costs were not falling as fast as expected.

"The customer experience is improving, and you see that with churn at 1.3 percent being the lowest we've reported, but the associated cost savings are taking longer to come out," Chief Executive Dido Harding said on Tuesday.

The miss on savings was about 10 to 15 million pounds, she said, while the company would also take a 3 to 4 million pound loss on its newly acquired blinkbox video service.

Analysts had predicted on average earnings for the year to end-March of 267 million pounds ($400 million).

Its shares, which fell more than 4 percent early on Tuesday, were trading down 1.2 percent at 314.3 pence at 1003 GMT.

Analysts at Citi said the market would be disappointed with another cut in guidance; the company said in November it would spend more than it planned on acquiring subscribers.

"However, TalkTalk's potential to benefit from either consolidation, or from remedies arising due to consolidation elsewhere will likely support the stock," they said.

The telecoms market is about to see the biggest change for years, with broadband leader BT poised to buy the country's biggest mobile operator EE.

Pay-TV group Sky (Other OTC: BSYBF - news) is also moving into mobile through a deal with Telefonica's O2. In turn, Hutchison (HKSE: 0013-OL.HK - news) , owner of the Three network, is in talks to buy O2.

Harding said TalkTalk was content to sit out market consolidation. "Clearly there is a real market for a value-for-money provider of quad play (fixed line, broadband, mobile and TV)," she said.

But regulators should question BT's ownership of Openreach, its division that provides access to its network for competitors, she said. "I've said publicly they should look at whether Openreach should be separate, and the consolidation adds fuel to that," she said.

She said she would also be looking for a better deal from its mobile partner if Telefonica sells O2."There are sure to be some economies of scale and I'd be looking to see better terms from them," she said.

TalkTalk posted revenue of 449 million pounds in the third quarter, and said 50,000 people had taken mobile, 115,000 TV and 88,000 fibre, while its broadband base rose by 15,000. ($1 = 0.6670 pounds) (Editing by Kate Holton and Sarah Young)