O2 nears iPhone partnership

Telefónica’s O2 mobile phone business was poised on Wednesday night to clinch a deal as Apple’s exclusive network partner for iPhone in the UK, said people familiar with the matter.

O2 is set to be the first European mobile operator to reach a deal with Apple for its much-hyped iPhone. Apple is to limit iPhone’s European launch this autumn to the UK, France and Germany. It will follow elsewhere in Europe next year, when it will also launch in Asia.

The European iPhone will operate on slower 2.5 generation mobile networks, not the 3G infrastructure of companies such as Vodafone, people close to the situation said.

The US computer company talked to four leading European mobile operators: Deutsche Telekom’s T-Mobile, France Telecom’s Orange, Telefónica’s O2 and Vodafone.

Carolina Milanesi, research director at consulting firm Gartner, said an iPhone launch in three European markets could make sense as no one operator covers the entire continent. Apple would logically deal with operators with most customers in each of the three markets. Orange leads in France, T-Mobile in Germany, and O2 in the UK.

European operators had a dilemma in negotiations because of concerns Apple seeks deals that could be far more onerous than past agreements with other handset makers.

The deal between Apple and AT&T, largest US telecommunications company, for the US puts Apple in the driving seat, reportedly giving it a share of customer revenue. The iPhone is priced at $499 and $599. US iPhone runs on AT&T’s 2.5G network.

When Apple set up its iTunes music download site in Europe in 2004, it confined the initial launch to the French, German and UK markets.

Ms Milanesi said Apple would be under pressure to launch the iPhone in other European countries soon after the French, German and UK markets because otherwise it could upset potential customers.

O2 said: “We have not signed a deal with Apple.” Apple said: “We … do not comment on rumours or speculation.”

However, Vodafone shares were among the worst performers on the FTSE 100 on Thursday - down 1.3 per cent at 164p.

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