Deutsche Telekom reaches deal to end strike

Deutsche Telekom’s trade union on Wednesday agreed to pay cuts for about 50,000 staff, putting an end to the first strike in more than a decade at the German operator.

The company and Verdi, the main trade union, agreed to a 6.5 per cent pay cut for about a quarter of its staff.

The reduction was less than the 9 per cent cut Telekom had sought, but more than the 2 per cent reduction employees faced without any new deal.

The outcome was seen as strengthening the position of René Obermann, Telekom’s chief executive, who took over in November last year.

“The new management has now proved its mettle in a very difficult labour conflict involving large-scale strike action,” said Ulrich Rathe, telecoms analyst at Dresdner Kleinwort.

In return for the pay cuts, Telekom extended job guarantees by one year till 2012 and pledged some one-off payments to staff.

The union agreed to increase the working week by four hours to 38 hours a week.

Both parties agreed to freeze pay negotiations for all staff until the end of next year.

The 15,000 staff who have been on strike for more than five weeks would gradually be returning to work and employees would formally approve the agreement next week, Verdi said.

Under the deal, thousands of Telekom call centre and maintenance workers will be moved to new business units.

The company said the agreement would enable it to reach its cost savings target of €500m to €900m by 2010. It expected savings of about €700m, according to telecoms analysts.

Mr Obermann has identified the need to cut total operating costs by €5bn for the company to regain competitiveness.

Falling revenues from traditional fixed-line telephony and sharp competition on mobile phone and internet services have put the company’s earnings under pressure.

The company hopes lower costs will allow it to take part in consolidation and seize growth opportunities when they arise.

Mr Obermann was appointed last year by the German government, which has 32 per cent of Telekom shares, and Blackstone, the private equity group that owns a 4.3 per cent stake, with a mandate to push through restructuring of the company’s cost structure.

The new chief executive’s first big move was to issue a profit warning at the beginning of the year, underlining the seriousness of Telekom’s challenges.

The company’s shares have suffered, barely moving in a strong market since the start of the year.

Investors reacted positively to Wednesday’s deal, sending Telekom shares 1.2 per cent higher to €13.93.

The shares have risen steadily since the strike began in early May, and are within a whisker of the €14 per share Blackstone paid for its stake in April 2006.