O2 beats rivals to take Apple's UK iPhone contract

The iPhone, which is expected to retail in the UK for around £300, launched in the US on June 29. It combines the qualities of the iPod with a mobile phone and has already proven to be a major success with consumers, shifting more than 700,000 units on its launch weekend.

O2's agreement with Apple will come as a major blow to Vodafone, which was widely tipped to secure the contract. According to reports, negotiations broke down between Apple and Vodafone's chief executive Arun Sarin about the commercial and retailing rights for the product, which were deemed to be unworkable for the mobile giant.

Other contenders for the UK contract, the most lucrative since the £22.5bn auction for 3G in 2005, are understood to have included Orange and T-Mobile. In separate deals, Orange is being tipped to win the contract for France, with T-Mobile likely to reach an agreement in Germany.

The iPhone, which combines wireless internet, mobile, multimedia player, camera and web browsing functions, has contributed to a near 50% jump in Apple's value, which now stands at around $34bn.

Under Apple's UK agreement with O2, the network provider can expect an undisclosed continuing share of revenues on each iPhone sold, and a substantial lift in sales for the network provider once the product hits UK stores.

Apple initially considered a pan-European contract for the consumer rights to the iPhone, but decided that selling the contract on a country-by-country basis would generate additional revenues.