Deutsche Telekom, which is seen as one of the potential rival bidders for Eircom, has announced plans to cut 32,000 jobs over the next three years, citing rising costs and increased competition in the fixed line telephone market.

The group has also ruled out making a counter-bid for O2, the UK mobile group which this week agreed a €26 billion offer from Spain's Telefonica.

Most of the job cuts will come in the T-Com traditional telephone division employing 107,000 people, though the company said it will try to reduce the net loss of workers to around 19,000.

"The rapid pace of technological development and the tough competitive environment in the fixed network and broadband sector in Germany have intensified the challenges we're facing," said chairman Kai-Uwe Ricke.

"We have to cut jobs in old core markets. At the same time, there are opportunities to create jobs in new innovative markets."

The announcement was a shock but no surprise: the company has fired an average of 10,000 employees each year since it went public a decade ago. Mr Ricke said in March that further cuts were coming to reduce labour costs, currently 23 per cent of revenue, to 20 per cent by 2007.

The company said the cuts would be made via voluntary redundancies with severance payments and part-time work. As a former state monopoly, around 46,000 of Telekom's employees are civil servants and difficult to fire, forcing the company to reach early retirement agreements with the Berlin government, still a 37.5 per cent shareholder in the company.

Economics minister designate, Christian Social Union (CSU) politician Michael Glos said: "This is very regrettable but we cannot artificially keep on jobs in which technology has replaced people."

Union leaders criticised the announcement of redundancies at a time of record profits.