JERUSALEM, Aug 9 (Reuters) - Bezeq Israel Telecom reported a 14% rise in quarterly profit on Wednesday, driven by its rapid fibre-optics broadband network deployment, and said it was set to launch much higher Internet speeds next year.

Bezeq, Israel's largest telecoms group, said it earned 354 million shekels ($95 million) excluding one-time items in the second quarter, versus 310 million a year earlier.

"Fibre has been a key growth engine," said Chairman Gil Sharon.

Revenue rose 3.3% to 2.3 billion shekels, with revenue in its core fixed line business reaching 1.1 billion shekels to its highest level since 2012.

Bezeq's shares rose 3% in morning trading in Tel Aviv.

Broadband internet revenue rose 9.5% as it reached 289,000 retail fibre customers at the end of June. It has 457,000 fibre customers including wholesale, while its network reaches some 2 million households.

"We are preparing for the AI revolution which will require huge bandwidths and strong network capabilities," CEO Ran Guron said, adding Bezeq was "building capabilities to deliver ultra-fast multi-gig rates."

Guron told a news conference that Bezeq would offer speeds of 10 gibabits (Gbps) per second, up from 2.5 Gbps currently, in the first half of 2024 and to 20-25 Gbps three to four years after that.

Bezeq is still working with Israel's telecoms regulators on getting approval to merge its fixed line business with its mobile phone and satellite TV units, Sharon said.

"This regulation of 30 years old is obsolete. It has to change," he said, noting the Communications Ministry intends to reexamine this policy later in 2023 or early next year.

Mobile phone unit Pelephone recorded a 2% drop in quarterly adjusted net profit to 44 million shekels, while revenue also slipped 2%. Pelephone's subscriber base slipped over the past year to 2.59 million.

Bezeq said it will pay a dividend of 392 million shekels, or 0.14 shekel per share, on Oct. 11.

The company last month raised its 2023 net profit estimate to 1.32 billion shekels from a prior 1.2 billion, citing lower than expected depreciation and financing expenses.

It maintained a forecast of 3.8 billion for 2023 earnings before interest, taxes, depreciation and amortisation (EBITDA) and 1.75 billion shekels for capital expenses.

($1 = 3.7160 shekels) (Reporting by Steven Scheer, Editing by Louise Heavens and Conor Humphries)