For the share price this is good, especially as KPN is the most battered blue chip in the Netherlands

Florian van Laar, Eureffect

During the past two years, the company has run up debts of 22.8bn euros through acquisitions and the purchase of third-generation telephone licences.

KPN's heavy borrowing has dented investors' confidence in the company, slashing its share price by over 90% from its March 2000 peak of 73.27 euros.

KPN's debt mountain was also a factor in the collapse of a planned merger with Belgian telecommunications firm Belgacom in August this year.

The failed merger cost KPN boss Paul Smits his job.

Cutting costs

The redundancies announced on Thursday are part of a wider cost-reduction programme unveiled last year after the company's credit rating was reduced to triple B - the lowest investment grade.

The lay-offs are due to take effect as soon as KPN managers have discussed redundancy packages with trade union representatives.

"The management board considers early completion of the workforce reduction to be absolutely essential in order to continue reducing KPN's debt burden, and to make the company healthy," the company said in a statement.

Markets cheer

KPN shares rose sharply in response to the redundancy announcement, leaping 13% shortly after the markets opened on Thursday.

"They are doing what they promised to do and they are speeding up the process. For the share price this is good, especially as KPN is the most battered blue chip in the Netherlands," said Florian van Laar, head of fund management at stockbrokers Eureffect.

However, some analysts say that bringing KPN's debt under control will require further measures, including the sale of its German-based mobile phone subsidiary E-plus.

Belgacom also announced plans to shed staff on Thursday, unveiling a redundancy plan that could affect up to 20% of its 19,700-strong workforce.

The company said the lay-offs are part of a restructuring programme drawn up after its planned merger with KPN fell through.