ZTE has followed up its budget handset deal with Vodafone with another global carrier, announcing an agreement with Telefonica to jointly develop low-cost 3G phones for Movistar in the Spanish market.

While the scope of the deal may not be as large as that of its contract with Vodafone, the agreement is for more advanced UMTS devices instead of budget GMS/GPRS handsets. That positions ZTE as a competitor with Chinese rival Huawei in the European market. Both are now making carrier-branded 3G handsets for sale at low cost with two of largest providers in Europe. While both vendors handset market shares in the west are still small (nonexistent in the U.S.) they both could now threaten the highly profitable UMTS handset businesses of Nokia, Motorola and other vendors by targeting new 3G customers.

ZTE said the phones would be available over the Movistar network this year, but it did not name any price points, saying only that they would be sold at a “highly competitive price.” So far neither company has an announced handset deal in the U.S. though ZTE has managed to score a deal for 3G laptop cards in Canada.