BRITISH Telecom's long hunt for a foothold in the huge French telephones market ended yesterday with a £1.1 billion sterling agreement with Compagnie Generale des Eaux, the giant utilities group.

The cash payment buys BT a 25 per cent stake in Cegetel, a newly formed company which aims to become the main competitor to France Telecom, the state owned operator, when the French, market is opened up to competition in 1998. It also plugs a crucial gap in BT's network of European alliances secured over the past three years, which include Germany, Spain, Italy and most recently, the Netherlands.

In addition, BT has gained a valuable head start in France over AT&T, which had been courting Compagnie Generale des Eaux (CGE) after being refused permission to take part in the alliance between France Telecom and Deutsche Telekom. The US group declined to say why the talks with CGE had failed, apart from a statement explaining that the two sides had not "been able to reach a shared vision".

Cegetel, which has been valued at £4 billion, will start life as a mobile phone operator through ownership of 80 per cent of SFR, France's second largest cellular phone company in which CGE already had a large stake. SFR, which is due to become profitable in 1998, has 700,000 customers in the under developed French mobile phone market.

In a complex arrangement CGE will gain a 50 per cent stake in Cegetel, with 15 per cent going to South Western Bell, the US operator, and the remaining 10 per cent taken by Mannesmann, the German industrial group.

Sir Peter Bonfield, BT's chief executive, would not reveal how much cash the other partners had injected, but he disclosed that BT's £1.1 billion injection was the largest single cash payment.