Deutsche Telekom was on Friday bracing itself for a potentially crippling strike from as early as next week after unions broke off talks about pay cuts, which the telecoms group says are vital to regain competitiveness.

Frank Bsirske, head of the Verdi services union, said management had “thrown down the gauntlet” and the union would now respond by “balloting members and preparing for industrial action” in the coming days.

Mr Bsirske’s call to arms may intensify an already bad-tempered dispute.

Protestors stormed a staff event being held by René Obermann, Telekom chief executive, in a Hamburg theatre on Friday, forcing security guards to intervene.

Mounting rancour throws into question a cost-cutting package through which Mr Obermann hopes to save €5bn ($6.8bn) a year by 2010. Lower costs and lower prices are aimed at winning back clients currently defecting.

Investors took fright at the prospect of a third profit warning in the space of a year – one that Telekom officials fear could result in Mr Obermann leaving a post he took over in late 2006 from a predecessor himself ousted by shareholders.

Telekom stock closed 0.9 per cent lower at €13.36, only a touch above levels seen in November when the German government and Blackstone private equity, the group’s leading shareholders, installed Mr Obermann.

Like other former state phone groups, Telekom has been losing traditional fixed-line customers.

But it has not been able to offer broadband and mobile services cheaply enough to curb the defection of customers to nimbler rivals. Mr Obermann wants to cut costs by moving 50,000 of Telekom’s 180,000 German staff to lower-paying subsidiaries. Verdi allows rivals to pay call-centre and other services employees 40 or 50 per cent less, he contends.

Telekom initially wanted a 12 per cent pay cut by January 2010 and an extension of working hours from 34 to 38 hours a week. A few days ago, it tabled a revised offer that called for a 9 per cent cut over the same two-year period.

But union officials walked out of talks with the former state monopolist late on Thursday, describing the new offer as unacceptable. “We are miles from any accord,” said Lothar Schröder, Verdi’s chief negotiator.

The union’s national executive last week gave its all-clear for a ballot of Telekom staff affected by Mr Obermann’s plan – some 30,000, according to Telekom, given the proportion of civil servants left at the group.

Company officials said they expected workers to come out in favour of a strike. This would enable Verdi to escalate the dispute as Telekom shareholders meet for their annual meeting in Cologne on Thursday.

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