On Monday, Deutsche Telekom, the biggest European telecoms operator by revenue, was in full damage control mode, with chief executive Rene Obermann telling the mass circulation daily Bild that all cases of surveillance "must be clarified and result in severe consequences."
The company acknowledged Saturday it had hired an outside firm to track hundreds of thousands of phone calls by senior executives and journalists to identify the sources of press leaks.
Deutsche Telekom was responding to a report in the news weekly Der Spiegel, which said Obermann was not in charge when the spying took place.
He has since announced that state prosecutors and a law firm in western Cologne were investigating the affair.
A Deutsche Telekom statement promised an "independent and thorough investigation," and quoted Obermann as saying: "I am deeply shocked by the incidents."
Deutsche Telekom said it made "ill-advised use of communications data" in 2005 and probably 2006.
But the telecoms operator also stressed it had no knowledge of wiretapping by the company involved, which was not identified.
The "personal data of our millions of fixed-line and mobile clients was secure," Obermann told Bild.
A finance ministry spokesman nonetheless termed the action a "serious breach of trust," while union leader Lothar Schroeder, who is vice president of the Deutsche Telekom supervisory board, called the affair "an enormous scandal."
The state is Deutsche Telekom's dominant shareholder with 32 percent stake.
An editorial in the newspaper Die Welt summed up the sentiments of many, saying: "Citizens now have a right to demand whether their data is in good hands at Deutsche Telekom."
Peter Schaar, a government official charged with the protection of computer data, said: "Unlimited data storage represents a serious threat to security."
He vowed "strong intervention to reinforce legal instruments for data protection."
Since January 1, information on mobile telephone communications, including the identity of correspondents, plus the time, place and length of calls must be stored by telecoms operators for a period of six months.
The measure, aimed at helping authorities fight terrorism, puts Deutsche Telekom on the front line because it is the biggest German mobile operator.
The law, drawn up to satisfy a European Union directive, raised howls of protest in a country which because of its history is especially worried by the spectre of a police state.
Measures such as installing secret cameras in terror suspects' homes and including biometric data on passports have riled civil liberties groups. The country's constitutional court revised the law in March following formal complaints by more than 30,000 people.
A few weeks later, it emerged that discount food retailer Lidl had hired detectives to install micro cameras that tracked employees, with graphic details and images shocking the population.
Lidl recorded employees when they used the toilet, their conversations while on break and kept track of who their friends outside work were, reports said.
Similar reports then surfaced concerning other distributors, further fueling fears of invasion of privacy.
Lidl's image took an immediate hit from the revelations while Deutsche Telekom looked set for a similar reaction by clients, millions of whom have already dumped the group's fixed-line services.