Germany's biggest phone company has offered US software giant Microsoft a 25% stake in its internet service, a German magazine has reported.

Capital magazine said Deutsche Telekom wanted the tie-up with Microsoft in order to reinvigorate its flagging share price, which is almost a third lower than it was six months ago.

Dealers cast doubt on the likelihood of a deal emerging. "[Telekom chief executive] Ron Sommer's pretty desperate to alleviate the debt burden," one told BBC News Online.

"But I'm not sure he's quite desperate enough to do this."

Telekom itself remained noncommittal. "I don't know what speculation has prompted this," press chief Dr Hans Ehnert told BBC News Online. "But Deutsche Telekom has no comment."

Microsoft, too, refused to comment.

Shares rise

However, the report pushed up demand for shares in both Deutsche Telekom and its internet service provider T-Online.

T-Online shares were trading at 11.25 euros, up 6.6% on Tuesday's close. Deutsche Telekom was 3.2% higher at 13.75 euros.

According to the report, Telekom wants Microsoft to buy 24.9% of T-Online for 3bn-4bn euros ($2.7bn-3.6bn; �1.9bn-2.5bn).

Capital magazine also reported that Deutsche Telekom was planning to axe 15,000 jobs from its fixed networks business.

Challenging AOL

T-Online - which lost 797m euros in 2001, double the previous year's deficit - is the biggest ISP in Europe, with AOL a close second in Germany.

Globally, AOL is well ahead of both T-Online and Microsoft's competing MSN service, but a combination of the latter two could challenge AOL's dominance.

Additionally, the magazine said, Deutsche Telekom and Microsoft are already collaborating on next-generation mobile phone services, in readiness for the day when the fast data services finally arrive in Europe.

Telekom is struggling with big debts and is desperate to relieve some of the burden.

Microsoft's money might help it in its aim to pay its debts down to 50bn euros from their current 67.3bn, analysts said.