Europe's biggest telecoms group Deutsche Telekom AG reported Thursday a drop in earnings as the former state monopoly gears up for its biggest union battle in a decade.

Strong growth in the group's overseas operations and high-speed internet business failed to offset a further loss in its fixed-line customers in Germany, resulting in net earnings falling 58 percent to €459 million ($621 million).

"A cut-throat price war is raging in Germany," Telekom's new chief Rene Obermann told a press conference in Bonn. Analysts had expected first-quarter earnings would come in at about €770 million.

Obermann appealed to union members to call off the strike action. "Strikes do not help anybody," said Obermann, who took over the chief executive job last November. Telekom has already undergone a major transformation over the last ten years after listing on the stock exchange in November 1996 and eliminating more than 100,000 jobs. Obermann plans to cut the group's current workforce of about 250,000 to 32,000 by the end of 2008 in an effort to reduce costs.

Obermann said Thursday the group had lost 588,000 fixed-line customers to its rivals during the first three months of the year.

"These figures show how enormous competition, and thereby the pressure to reform, is especially in the German fixed-line business," he said.

Telekom shares rocketed up to €104.90 in June 2000 at the height of the so-called New Economy boom before skidding down to a record low of €8.14 in June 2002. Then again in January Telekom shares came under renewed pressure after the company issued a shock profit warning.

After initially rising, shares in the group edged down 0.47 percent to €12.59 following the release of the results Thursday.