3rd UPDATE: Apple Launches iPhone In UK With Telefonica's O2

By Daniel Thomas

Of DOW JONES NEWSWIRES

LONDON -(Dow Jones)- Electronic consumer goods giant Apple Inc (AAPL) Tuesday put an end to weeks of speculation, launching its much-talked about iPhone in the U.K. in time to cash in on the lucrative Christmas trading period.

The U.K.'s largest mobile phone operator by subscribers, Telefonica's (TEF) O2, has been awarded exclusive rights to sell the iPhone, which combines a mobile phone, alongside an iPod music and video player and Internet browsing. It will begin selling on Nov. 9 for GBP269 ($536), including value added tax, or VAT.

The multiyear deal, announced Tuesday by Apple Chief Executive Steve Jobs and O2's UK Chief Executive Matthew Key at a press conference at Apple's flagship Regent Street store in London, will see the iPhone sold through Carphone Warehouse PLC (CPW.LN) shops, as well as those owned by Apple and O2.

In the same way that Steve Jobs has struck an exclusive revenue sharing deal with telecoms operator AT&T Inc (T) in the U.S. and now O2 in the U.K., Apple is expected to announce deals with France Telecom's (FTE) Orange and Deutsche Telekom's (DT) T-Mobile in Germany in coming days.

U.K. consumers that sign up to an 18-month contract will be able to subscribe to either a GBP35, GBP45, or GBP55 tariff, receiving unlimited mobile data usage as part of their package. The number of voice minutes and text messages will vary depending on the package.

In an attempt to overcome O2's patchy "Edge" Internet connectivity in the U.K., which will cover 30% of the nation by launch, the mobile operator is also giving iPhone users free access to 7,500 WiFi Internet hotspots around the U.K., run by wireless company The Cloud.

Both Apple's founder Steve Jobs and O2's Key declined to comment on rumors that Apple will receive 10% of voice and data revenues from. "I'm not going to go into specifics, but both companies are happy with the deal," said Key.

Jobs said that the GBP269 iPhone price in the U.K, which includes VAT, was more expensive than the $399 (GBP199) in the U.S., due to the different tax structures and higher trading costs in the country.

02's Matthew Key said that he was confident the iPhone would sell well, adding that internal research conducted by the company, shows that 80% of its high value customers want an iPhone. Key said that research showed that 40% of customers with rival operators said they would switch operators for an iPhone.

But unlike most other handsets in Europe, the iPhone - which has 8 gigabytes of memory to store music and video files, as well as a two megapixel camera, a radio and WiFi internet connectivity - will not be subsidized by the mobile phone operators selling the device, as Apple doesn't want to cannibalize sales of its new range of popular iPod music players.

The iPhone may also face tougher competition in Europe than it has done in the U.S., where two of the world's largest multimedia phone makers Nokia Corp (NOK) and Sony Ericsson, a joint venture between Sony Corp. (SNE) and Telefon AB LM Ericsson (ERIC) have less market share, said Ben Wood, an analyst at mobile research firm CCS Insight.

"There's no doubt this will be one of the hottest consumer electronics items out there this Christmas. It's a 'wow' product," said Wood.

But the iPhone will face tougher competition in Europe from Nokia and Sony Ericsson, who have already unveiled their range of phones with high-quality music and Internet browsing functionality. The competition could be aided by rival mobile operators, that have lost out on the iPhone contract, ramping up competition in the music device space by giving these handsets away for free, he said.

Steve Jobs, who said that he plans to announce "a few more" operators in Europe next quarter and when asked about lack of subsidies, said: "Sometime you get what you pay for too."
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