Deutsche Telekom has denied any wrongdoing in response to a probe into its pricing policies.

The European Commission has launched an investigation into whether Deutsche Telekom abused its market power to prevent competition.

The Commission's competition watchdog will probe the prices the German telecoms incumbent charged its rivals for access to its local telecoms networks.

"The Commission believes that Deutsche Telekom abuses its dominant position through unfair pricing practices," Competition Commissioner Mario Monti's office said in a statement.

"Many very promising new entrants have already been forced to give up their business."

The probe was launched following complaints from Deutsche's rival Mannesmann Arcor, and from local and regional telecoms firms, about the prices they were being charged for access to local networks.

Denial

Deutsche Telekom said that the probe was incomprehensible.

"We don't understand why we're the object of this warning," said spokesman Stefan Broszio.

"On a Europe-wide comparison, out of 15 countries we're among the five with the cheapest prices," he said.

The Commission should raise the issue with the German regulator RegTP rather than with Deutsche Telekom, the spokesman said, given that it was the regulator who set out the pricing.

Deutsche Telekom has been given two months to respond to the competition watchdog's "statement of objections".

Share price rebounds

Germany's telecoms market was liberalised in 1998.

Under the new rules, Deutsche Telekom's local loop phone networks should have been made fairly and equally accessible to all telecoms companies wishing to connect their national networks to German homes.

Deutsche Telekom's shares fell to a historic low of 12.38 euros when the markets first heard of the probe, before bouncing back to 13.35 euros on Wednesday after the firm's rebuttal.

"There was pressure on the stock after the EU news, but criticism of Telekom's dominant position in the local network business is not really a new element," said one trader."

"You certainly don't have to sell the share because of that," he said.

Deutsche's shares have fallen sharply since the privatisation when they were trading at 28.50 DM