Deutsche Telekom, Europe’s biggest telecoms group, will use Microsoft software to power new internet-based television services it plans to offer in Germany before the end of the year.

Both companies declined to specify the value of the deal, but Microsoft said it was second only to one with AT&T, the US telecoms group, which plans to spend $400m over 10 years.

The move cements Microsoft’s position as the leading supplier to providers of internet protocol TV, with 13 telecoms groups installing or testing its IPTV software.

It also represents a milestone for Deutsche Telekom in its bid to be one of the first telecoms groups to offer high-definition TV, voice and data services on new ultra-fast internet lines.

But Deutsche Telekom’s ambition to secure a lead in “triple-play” by pushing for an exemption from regulation in Germany has soured relations between the government and the European Commission in Brussels.

Despite the dispute, Deutsche Telekom is planning to invest €500m ($609m) this year to bring very high rate digital subscriber lines (VDSL) to 10 German cities. Another 40 are set to follow by 2008.

The company said the Microsoft TV IPTV Edition software platform was vital to providing new services such as simultaneous high-definition TV streams and interactive options.

Microsoft TV was developed in the late 1990s to deliver programmes to set-top boxes, but could not woo cable TV companies. The emergence of broadband saw Microsoft target telecoms operators as new users.

Kai-Uwe Ricke, Deutsche Telekom chief executive, said the software would allow for “excellent quality” services, which Deutsche Telekom could expand with consumer demand.

Steve Ballmer, Microsoft chief executive, said the announcement represented its largest IPTV agreement in Europe.

The deal comes just two weeks after Telecom Italiaalso selected Microsoft’s software and represents another important endorsement following reports of deployment delays last year by Swisscom.

Since then several other carriers including Britain’s BT have announced plans to roll out IPTV services based on Microsoft technology.

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