Vodafone has agreed a 10-year partnership with Microsoft to bring generative AI, digital, enterprise and cloud services to more than 300 million businesses and consumers across its European and African markets.

The British company will invest $1.5 billion in customer-focused AI developed with Microsoft’s Azure OpenAI and Copilot technologies, it said, and will replace physical data centres with cheaper and scalable Azure cloud services.

Microsoft will in turn become an equity investor in Vodafone’s managed IoT (Internet of Things) platform when it is spun out as a standalone business by April, and help scale Vodafone’s mobile financial platform in Africa.

Vodafone’s Chief Executive Margherita Della Valle, who is under pressure to return the group to profit growth, has identified an opportunity to help businesses digitise, noting in May that the addressable market was worth 140 billion euros.

She said the deal, which she signed with Microsoft’s Chairman and CEO Satya Nadella, would “accelerate the digital transformation of our business customers, particularly small and medium-sized companies”.

Vodafone’s Chief Financial Officer Luka Mucic said Microsoft’s leadership in AI, underpinned by its OpenAI partnership, would transform the telco’s customer services.

“That’s the part that is really going to catch each and every one of our customers,” he said on Tuesday, adding that a Microsoft AI-underpinned TOBi chatbot would provide more consistent and intelligent responses to queries.

The technology would help Vodafone’s customer service staff improve productivity and the quality of their conversations, the company said, rather than replacing them with AI.

Microsoft’s Chief Commercial Officer Judson Althoff said Vodafone’s strength in IoT and financial services were strategically important. “The IoT assets are critical in helping us address the sustainability needs of so many of our customers in hard-to-abate sectors,” he said.