Telstra, Australia's largest Telco, has reported a 36% fall in first-half profit, maintained its high 14c a share and done a deal to get the NBN underway and the cash rolling in from Canberra.

The downturn in earnings was steeper than expected (by around $200 million), but the combination of the dividend comment and the NBN deal saw the shares rise 3c in early trading to $2.91.

They however eased in late trading to close down one cent at $2.88.

Investors had expected a profit fall, the company has been warning of it since the 2010 profit announcement and then the AGM.

Telstra has explained that it has been investing heavily in revamping itself and its processes to improve efficiency (especially in dealing with customers) and winning back lost market share as more and more fixed lines are abandoned by customers.

Telstra said yesterday that it posted a profit of $1.21 billion in the six months to December 31, compared with $1.89 billion a year earlier.

Telstra has been overhauling its operations in a bid to increase profit margins, cut costs and diversify away from the declining market for fixed phone lines.

And there were plenty of signs that it remains a work in progress, but with some gains.

The higher costs and lower margins have come from the price cuts and boost to