"There are going to be harsh consequences" if allegations that Deutsche Telekom spied on company officials and journalists by monitoring phone traffic between them in order to uncover the source of information leaks are true, said CEO Rene Obermann in a statement published in the German mass circulation Bild Zeitung on Monday, May 26.

"This is a breach of our data privacy laws. Cases of misconduct must be clarified," said Obermann, who assured Telekom customers that their phone records would remain confidential.

"The billing records of our millions of fixed-line and mobile customers remain secure," he said, adding that he has faith in Telekom's 240,000 employees.

The alleged misconduct took place over the course of more than a year in 2005-2006 under Obermann's predecessor Kai-Uwe Ricke, who was ousted at a time of diminishing profits and management disputes.

"Earth-shattering"

Ricke and Klaus Zumwinkel, who was head of the telecom giant's supervisory board at the time, both denied commissioning the analysis of the data, which recorded the numbers dialed and the time and the duration of phone calls. Obermann was head of the mobile division of Deutsche Telekom at the time.

Hundreds of thousands of phone calls made by top management and supervisory board members were monitored, but not tapped, according to newsmagazine "Der Spiegel." A private Berlin agency has been analyzing the data.

Numerous phone calls out of New York were also monitored, "Der Spiegel" reported. The New York-based Blackstone Group, a private equities firm, owns a significant stake in Deutsche Telekom, which is one-third state controlled.

The criminal inquiry, which has been handed over to public prosecutors, threatens to undermine relations with labor leaders at a point when management has been making massive job cuts in restructuring its domestic operations.

Max Stadler a parliamentarian and internal affairs spokesman for the opposition FDP, told the Frankfurter Rundschau newspaper it was "earth-shattering that a company that has a special responsibility for protecting private data" violated Germany's data privacy laws.