KT Corporation and Microsoft have forged a multibillion-dollar strategic partnership to support one of South Korea's largest telecommunications operators' AI and cloud business.

The two companies on Sunday unveiled their five-year partnership, which includes the joint development of customized AI models and services for the South Korean market, as well as the launch of sovereign cloud services for the domestic market.

No financial details were given about the total investment involved in the partnership. However, KT Corporation has announced that it will provide Microsoft with $450 million (approximately 585 billion Korean won) in network and cloud infrastructure over the next five years.

"The partnership with Microsoft presents a pivotal opportunity, not only for technological collaboration but also for expanding Korea's AI foundation and driving transformative innovation across industries and daily life," said KT CEO Young-Shub Kim in a statement.

Building customized Korean AI models

KT and Microsoft will build customized versions of GPT-4o and Microsoft's Phi family of small language models using the telecom operator's extensive data sets on Korean culture and industries. These models will be used for both KT's internal and consumer-facing applications, such as customer service chatbots, and to build industry-specific AI solutions for B2B customers across industry verticals.

KT will also use Microsoft Copilot Studio and Azure AI Studio to develop custom AI agents, extending their use beyond consumer use cases such as education, healthcare and in-vehicle infotainment to business applications.

"Our strategic partnership brings together KT's industry expertise with the power of our entire tech stack, from Azure AI to Microsoft 365 Copilot," Satya Nadella, chairman and CEO of Microsoft, said in a statement.

"Together, we will help accelerate the AI transformation of Korean organizations across the private and public sector and build new AI-powered experiences for millions of consumers," he added.

Both KT and Microsoft have pledged to ensure the delivery of safe and secure AI services by working closely together to further develop the telco's framework for responsible AI.

Rolling out Korean sovereign cloud services

A key cornerstone of the partnership between the two companies is the development and launch of Secure Public Cloud services, KT's sovereign cloud solution built on Microsoft Cloud for Sovereignty for regulated industries in the country.

KT's sovereign cloud services will provide organizations in regulated industries with access to the latest cloud and AI capabilities available on Azure, while helping them comply with local privacy and regulatory requirements.

"This collaboration aims to position KT at the forefront of the domestic AI transformation, offering more reliable and adaptable cloud services," the South Korean telecom operator said in a statement.

"With extensive experience in working with advanced European nations like Switzerland, Italy, and Belgium, Microsoft will share their accumulated expertise and insights with KT," the company added.

Creating an AX-specialized service company

To accelerate the AI transformation of organizations across South Korea, KT will establish an AX (AI Transformation) specialist services company to support the local adoption of the latest AI technologies. Microsoft will support this initiative over the next three years with professional consulting resources to build core practices and capabilities for the new company.

KT and Microsoft are looking to eventually expand this AI service business beyond South Korea to overseas markets, with a particular focus on Southeast Asia.

Meanwhile, the two companies will also establish an "innovation center" at KT's Gwanghwamun Building to serve as a hub for global AI and cloud technology innovation by investing in local startups and expanding cooperation with local universities and research institutions to foster the development of local talent in AI research and development.