Nippon Telegraph and Telephone(NTT) says the cuts are part of a three-year business reform plan.

The company's NTT East unit will cut about 10,000 posts from its 60,000 workforce, while NTT West will axe some 11,000 jobs from its 68,000 workforce.

The world's second largest telecommunications company will also reduce its capital spending by 900bn yen (£5.35bn) over the three year period, by limiting annual spending to 1 trillion yen.

The company's current annual expenditure is about 1.3 trillion yen.

NTT also said it was considering introducing a merit-based wage system to further enhance its cost structure.

"While continuing to respond to customer demand for fee reductions, the NTT group aims to achieve further growth in the rapidly changing telecommunications market by restructuring, including the reallocation of human resources," a statement from the company said.

As a result of the restructuring, NTT East is expected to post a pre-tax profit of 100bn yen in the year to March 2003 and NTT West a pre-tax profit of 30bn yen.

Deregulation in the Japanese telecoms market means NTT is facing increasing competition from foreign firms.

British Telecom and its US based global partner AT&T recently took a stake worth $1.85bn in Japan Telecom.

NTT also lost out in a fierce battle with the UK's Cable and Wireless over struggling Japanese long-distance carrier, International Digital Communications (IDC).