Trouble at Telekom

The announcement by Germany's powerful service sector Ver.di union that its members had decided by a large majority to strike came as the former state monopoly reported a fresh slump in earnings.

Ver.di said that 96.5 percent of the 20,000 eligible to join the strike ballot had voted to down tools over Telekom's cost-cutting plans, which include shifting 50,000 workers to a new service company and reducing wages.

The strike call followed the breakdown of talks between the union and Telekom, which is struggling to boost its earnings and competitiveness in the face of fierce competition in its domestic German market.

"Strikes do not help anybody"

Telekom chief Rene Obermann called on the union Thursday to lay aside the strike plans and to return to the negotiating table.

"Strikes do not help anybody,' said Obermann, who took over the chief executive job last November.

But Ver.di officials said the strike action could start Friday.

"We hope that the Telekom management comes to its senses quickly," said Lothar Schröder, a member of the Ver.di board, announcing the strike.

While Ver.di strike leader Ado Wilhelm told dpa-AFX there would not be a total collapse of services, he said Telekom customers would feel the effects of the strike.

The union's move follows five weeks of so-called warning strikes by Telekom employees over the cost-cutting plans.

Warnings about fierce competition

The decision to step up industrial action followed warnings from Obermann about the fierce competition facing the Bonn-based company and the need for it to reform.

Indeed, strong growth in the group's overseas operations and high-speed internet business failed to offset a further slump in its fixed-line customers in Germany, with net earnings tumbling 58 percent to 459 million euros ($621 million)

"A cut-throat price war is raging in Germany," Obermann told a press conference in Bonn Thursday. Analysts had expected first-quarter earnings would come in at about 770 million euros.

"We see no alternative to the reforms that have been instituted, and which have been discussed in detail for weeks and months now" said Obermann. "Only these measures can ensure the long-term independence of Deutsche Telekom and secure as many jobs as possible in the company here in Germany."

Telekom has already undergone a major transformation over the decade since it was listed on the stock exchange in November 1996, with the group eliminating more than 100,000 jobs.

But as part of Obermann's drive to reduce costs, he wants to cut the group's current German workforce by 32,000 by the end of 2008.

Underscoring the intense competition facing Telekom in Germany, Obermann said Thursday the group had lost 588,000 fixed-line customers to its rivals during the first three months of the year.

In particular, this is a further sign of the competition that has taken shape in Germany's domestic telecoms market since liberalization of Europe's telecommunications industry in 1998.

A rollercoaster ride

Telekom's struggle to turn around its domestic German market was in stark contrast to a solid performance of its international operations, which now represents almost 50 percent of its total revenue.

Telekom's shareholders have been on a rollercoaster ride since the former state monopoly's shares were first listed on the share market in November 1996 at a price of 14.32 euros for private investors.

After steadily climbing in the wake of their stock exchange debut, the Telekom shares rocketed up to 104.90 euros in June 2000 at the height of the so-called New Economy boom before skidding down to a record low of 8.14 euros in June 2002.

As Thursday's trading drew to a close, the group's shares edged up 0.3 percent to 12.69 euros following the release of the first-quarter results and the announcement of the strike.