"The notion of becoming a key supplier of infrastructure gear for an incumbent (telecom) player is really a big deal for Cisco because it's sort of the temple of carrier-class thinking that when you get validated by the likes of SBC...you really have cracked a very tough nut," said Roland Acra, chief technology officer of Cisco's service provider business.

The SBC pact is Cisco's first deal on a phone company's traditional voice network. Generally, Cisco supplies equipment for data networks.

Other services SBC will eventually offer customers using Cisco equipment include integration of voice, data and video on a single network, advanced security options, wireless local area networks, and managed Web and storage-area network hosting.

San Jose, Calif.-based Cisco has pushed to boost its smaller telecom business by using its strong ties to corporate customers to sign deals with telecom service providers. Telecom accounts for about 20 percent of Cisco's sales, and Cisco wants to boost that to more than 40 percent over the next five years.

The company derives the bulk of its revenue from large corporations outside the telecom sector. In turn, SBC is trying to take advantage of Cisco's dominance in the enterprise sector to boost its business.

"Focus on managed services is a fundamental shift and we felt doing things with Cisco made a lot of sense because of their presence in the market for the enterprise perspective," said Mike Reddout, SBC's vice president of emerging services.

VPNs allow businesses to securely use the Internet to share files and other data.

For the past couple years, SBC has been one of the largest resellers of Cisco gear. SBC, based in San Antonio, Texas, also recently said it would buy high-end Cisco routers, machines used to connect computer networks for the transmission of data and information, for a nationwide network delivering new online services to businesses.

Financial details of the new agreement were not disclosed. But Carlos Dominguez, Cisco group vice president for the U.S. service provider business, said that the market for such managed services was a multibillion-dollar opportunity. SBC said its has seen annual growth of 25 percent in demand for managed services and expects that to continue.

Dominguez said the deal with SBC is larger in size and scope than similar deals previously signed with British-based Cable & Wireless or with U.S. long-distance telephone carrier Sprint.

In late April, Cisco said that Web hosting company Cable & Wireless would use Cisco equipment under a four-year partnership to offer companies a single, Internet-based communications network that hooks up all their desktops, allowing them to cut costs and operate more efficiently.

Cisco said at the time that the Cable & Wireless deal was worth hundreds of millions of dollars for both companies. Cisco signed its partnership with Sprint in December 2001.