The company said most of the reductions would be at the fixed-line unit, T-Com, and there would be no compulsory redundancies before 2008.
"In particular, the tough competitive environment in the fixed network and broadband sector in Germany imposed by the regulatory situation intensify the challenges facing the entire Deutsche Telekom group," it said in a statement.
"It was known that Telekom had surplus staff, above all in the fixed-line business," said Andreas Heinold, analyst at Landesbank Baden-Wuerttemberg. "Therefore it's positive that Telekom is now dealing with this problem."
Cheaper rivals are eating into the market share of former monopoly Deutsche Telekom in the German fixed-line telephony market, and regulators have imposed price cuts.
The figure of 32,000 job cuts includes 7,000 at Vivento, the firm founded to find new jobs for Deutsche Telekom's surplus staff. It was not immediately clear whether there could be compulsory redundancies there.
Deutsche Telekom said it would also hire 6,000 new staff in Germany over the period in newer markets, meaning the net payroll reduction was likely to be 19,000.
"Future and present employment potential is greatly dependent on regulatory decisions. For example, if the development of a high-speed fibre-optic network were endangered by regulation of this new market, an additional 5,000 jobs would be jeopardised," it said.