The market reaction to Telstra's reported 28 per cent dip in profits and lower dividend for the first-half of 2019 is overdone and ignores the impressive growth in mobile customers, says Morningstar.

The NBN rollout continues to weigh on Telstra's books, with the telco giant cutting its interim payout to shareholders after first-half 2019 profit fell to $1.2 billion.

But Morningstar senior equity analyst Brian Han believes Telstra is on track to fill the well-documented $3 billion earnings hole the national broadband network is tipped to blow in its balance sheet.

His fair value estimate remains unchanged at $4.40, despite the market's negative reaction to the result.

Telstra's revenue for the six months to 31 December fell 1.7 per cent - or $223 million - to $12.59 billion, though there was growth in prepaid mobile services customers.

"The importance of the 239,000 increase in Telstra post-paid mobile subscribers in the December-half cannot be overemphasised," says Han.

He believes the 2 per cent hit to the telco's average revenue per user is necessary in setting the groundwork for a successful roll-out of 5G in the coming months.

"Granted, the cost of this gain was felt...and manifested in the 6 per cent decline in fiscal 2019 first-half mobile EBITDA to AUD 1,905 million.

"But the fact that it added this volume of customers was a pleasant surprise, I want them to compete hard for customers, and I think this growth is a good thing."

Telstra's mobile business comprises around 40 per cent of total group EBITDA, and is a business that management hopes will become the company's "engine room".

"While today's financial results show parts of our business continue to face short-term challenges, there are positive signs particularly with the significant increase in retail postpaid mobile services," chief executive Andrew Penn said on Thursday.

The company will pay an interim dividend of 8 cents, fully franked, down from 11 cents last year.

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Telstra's share price has been quite volatile today, rising above $3.20 before midday from its $3.08 opening price, before dropping back to $3.12 at 3pm. Morningstar's Han attributes much of this to the dividend cut.

"The market was expecting a low dividend, but I think this was even lower than expected," Han says.

Telstra will pay an interim dividend of 8 cents, fully franked, down from 11 cents last year, which he says is around 1 cent below market consensus, but only half a cent below his expectation.

"Telstra is no longer a 100 per cent payout company. When trying to compete for customers, you need to keep your powder dry - management can't afford to pay out all earnings to shareholders," he says.

However, he believes income investors will still favour the stock, which even at its lower rate, continues to deliver a 5 per cent yield.

Approximately 55 per cent of Asutralian premises are now connected to the NBN, with the associated costs expected to weigh on results in the short term.

"This has been a challenging time as we continue to see increasing competition in the mobile market and Telstra feels the unique impact of the transition to the NBN," Telstra's Penn said.

The company confirmed its FY19 guidance as outlined in September, with total income expected to be between $26.2 and $28.1 billion, and EBITDA excluding restructuring costs between $8.7 to 9.4 billion.

Telstra shares were worth $3.21 before the open of trade on Thursday, up 22.5 per cent from a near historic low of $2.62 in June, but down from $3.43 a year ago.