The deal involves a $1.5 billion payout from Vodafone to Microsoft over the next decade.
As part of the deal, Microsoft will use Vodafone's phone services and said it plans to invest in its Internet of Things platform, which is set to split off by April 2024.
Microsoft said the AI services that Vodafone will use will be based on fair and ethical privacy and security rules already set by Vodafone's plan for responsible AI.
Vodafone said that it believes in honesty and morals when it comes to AI. According to Vodafone, this means customers should be told when they're talking to an AI robot or chatbot.
Vodafone's AI method also focuses on human control, ensuring that computer outputs "do not accidentally make us decide things that may unfairly hurt any group or person."
Vodafone said it is also focused on keeping customer privacy and data security and teaching its staff to understand better how to use AI in their work.
Vodafone already uses AI to spot where network power is needed to improve its services, boost staff efficiency and help decision-making based on AI-powered data analysis. The company also uses AI chatbots to help deal with customer questions and issues.
"Today, Vodafone has made a bold promise to the digital future of Europe and Africa," Vodafone boss Margherita Della Valle said in a statement. "This unique strategic partnership with Microsoft will speed up the digital change of our business customers, especially small and medium-sized companies, and improve the quality of customer experience for consumers."
The two companies plan to work together in several areas, including AI, the company's Internet of Things platform, cloud growth, enterprise growth and digital boost in Africa.
Vodafone will use Microsoft's AI technology to improve its customer-facing AI programs and internal working ways. The phone company will also be working with Microsoft's cloud sector, Azure, to speed up the growth of its cloud services while cutting its running costs.
As part of the deal, Vodafone will help sell Microsoft's range of services, including Teams Phone Mobile, to business clients across Europe.
Microsoft boss Satya Nadella said in a statement that this new generation of AI will unlock huge new chances for every organisation and industry worldwide.
"We are delighted that with Vodafone, we will use the latest cloud and AI technology to improve the customer experience of hundreds of millions of people and businesses across Africa and Europe, build new products and services, and speed up the company's move to the cloud."
Shares of Microsoft on Tuesday morning briefly hit a new 52-week high of $394.03 before settling at $392. With a market cap of $2.9 trillion, the company has overtaken Apple, which has a market cap of $2.82 trillion, as the world's biggest company.
