The two firms signed a memorandum of understanding in Beijing, in which the Chinese firm will be responsible for building a fibre-optic communication network based on Internet protocol (IP) for Germany's third largest fixed-line operator.

It is the first time Huawei will provide technology for the whole network of a German operator. The deal is also one of the largest the firm has ever made in Germany, where it has had less success compared to European countries such as Spain and the United Kingdom.

"This is a milestone for Huawei in Germany," said Ding Shaohua, senior vice-president of the Shenzhen-based Chinese giant.

The firms' cutting-edge "dense wavelength-division multiplexing" allows the transmission of many signals through a single fibre. That means different applications such as voice calls and the Internet can run together at a very high speed.

Versatel is the third largest fixed line operator in Germany after Deutsche Telekom and Arcor with 700,000 subscribers. Its network is based on different assets from 14 acquisitions, giving it a strong reason to want a unified IP network.

"We are facing a lot of important challenges, and we need a reliable partner to handle these challenges," said Peer Knauer, CEO of Versatel, whose revenues are expected to reach 690 million euros (US$883 million).

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