UPDATE 2-Britain's TalkTalk cuts dividend, raises cash to invest in fibre network

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LONDON, Feb 8 (Reuters) - British broadband provider TalkTalk will cut its dividend and raise up to 200 million pounds ($278 million) to strengthen the balance sheet and fund the build of a new full-fibre network.

Charles Dunstone, the founder of the smaller rival to BT , Sky and Virgin Media, said the dividend would not increase again until it had reduced its leverage, a task that would take two to three years.

TalkTalk also cut its 2018 core earnings guidance, after it spooked the market by lowering it in November.

"Looking ahead we see real opportunity to continue growing the core business whilst also investing in full fibre," Dunstone said. "We have therefore strengthened our balance sheet and temporarily reduced our dividend to take full advantage of the opportunities available."

TalkTalk said it had agreed terms with Infracapital, the infrastructure equity investment arm of M&G Prudential, to create an independent company to build a full fibre network to more than 3 million homes and businesses in mid-sized towns and cities in Britain.

Infracapital would contribute 80 percent of the funding and TalkTalk 20 percent, it said. It will initially invest 100 million pounds into the project.

TalkTalk said it now expected full-year 2018 core earnings to come in between 230 million to 245 million pounds.

It had previously forecast earnings toward the bottom end of a 270 million to 300 million pound range.

The company, which has increased its focus on the value end of the market through its long-term low price plans, said it added 37,000 customers in its third quarter, an increase on 20,000 in the first and 26,000 in the second.

"We strongly welcome this commitment by TalkTalk to take full fibre broadband to three million homes and businesses in the UK," Digital Minister Matt Hancock said.

"It's fantastic to see TalkTalk stepping up to the plate." ($1 = 0.7196 pounds) (Reporting by Paul Sandle, writing by Kate Holton, editing by Guy Faulconbridge)