Vodafone scraps European datacentres after signing $1.5bn deal with Microsoft

Both partners emphasise generative AI

Microsoft and Vodafone announce 10-year deal worth $1.5 billion, which will result in Vodafone closing its datacentres across Europe and switching to the Azure cloud

Vodafone has announced a strategic partnership with Microsoft with generative AI at its heart.

The telecommunications giant will invest $1.5bn in AI and cloud services to be joointly developed with Microsoft over a 10-year period. The deal will see most existing datacentres in Europe being closed and being replaced by Azure datacentres. The deal should result in a range of AI driven services for Vodafone customers - particularly SMEs across Europe and Africa.

The African fintech platform M-Pesa is also part of the deal. The aim is to scale the platform by migrating it to Azure and enabling the launch of new cloud-native applications.

Microsoft will also invest in Vodafone's Internet of Things (IoT) platform which will be spun out as a separate entity by April this year with the aim of expanding the platform and the number of devices connected to it, signing new partnerships and winning more customers.

This deal should be viewed in the context of the race to benefit from generative AI. According to Vodafone, the deal will use generative AI technology to provide a ‘highly personalised and differentiated customer experience across multiple channels". It also stated that these experiences ‘will be built on unbiased and ethical privacy and security policies under Vodafone's established framework for responsible AI'.

Margherita Della Valle, Vodafone Group chief executive, said: "Today, Vodafone has made a bold commitment to the digital future of Europe and Africa. This unique strategic partnership with Microsoft will accelerate the digital transformation of our business customers, particularly small and medium-sized companies, and step up the quality of customer experience for consumers".

Satya Nadella, chairman and CEO, Microsoft commented: "We are delighted that together with Vodafone we will apply the latest cloud and AI technology to enhance the customer experience of hundreds of millions of people and businesses across Africa and Europe, build new products and services, and accelerate the company's transition to the cloud".

The announcement didn't make a great impact on the share prices of either party. Vodafone shares closed out the day much where they started, and the stock is down more than a quarter over the last year. By contrast, Microsoft shares have risen by more than 60% over the same period and the company is now the most valuable tech company globally, having recently usurped Apple.

It will be interesting to see whether regulators express concern over the deal. Last October the Competition and Markets Authority (CMA) announced an investigation into the cloud services market, and the CMA is already looking into Vodafone's proposed merger with Three. EU regulators may well take an interest in the data sovereignty implications of migrating the data of thousands of EU Vodafone customers into Azure.