The handset will be developed using Microsoft's smartphone platform and marketed to home users by France Telecom. The first products from the partnership should be available within a year.
"France Telecom aims to build the future of telecom services, and to become the preferred telecom services provider by harnessing the potential of information technologies on integrated fixed, mobile and internet networks," said Didier Lombard, chairman of France Telecom.
"The partnership promises customers a new experience of telecoms, with services that enhance their everyday life."
The pair will also develop a new platform to deliver video, data and voice services using Microsoft's Connected Services Framework.
"This partnership demonstrates the commitment of both companies to innovating and delivering the best services to customers," said Steve Ballmer, chief executive of Microsoft.
"Innovating together, we will deliver new digital devices and better integrated end-to-end services that combine Microsoft's expertise in software with France Telecom's expertise in broadband and mobile networks."
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