C&W will create a state-of-the-art communications network to carry voice calls, data and Internet traffic between 40 cities in 13 countries.

The company foreshadowed the plans when releasing profit results last week, at the same time signalling a shift in focus away from crisis-hit Asia towards Europe.

However, the company also said that the expansion would not involve an alliance with Telecom Italia after negotiations had fallen through.

Building on MCI Internet buy

This aggressive growth strategy into new areas of telecommunications is intended to make the most of C&W's $1.75bn purchase of the Internet business of US firm MCI and make the company a leading trans-Atlantic telecommunications provider.

The $1bn investment will fund the purchase of necessary licences, a high-speed 'backbone' network linking eight countries, rolling out fibre optic links in Europe and the expansion of Internet across the continent.

The UK cities linking to the network will be London, Birmingham, Manchester, Glasgow, Liverpool, Newcastle, Leeds, Cardiff, and Edinburgh.

But C&W emphasised the investment will be in addition to a previously-announced £5bn investment in the UK over the next three years.

Rival plans

C&W's announcement further draws the battle lines with rival British Telecom (BT).